The FTSE 100 index suffered yet another three-figure decline yesterday, taking the sell-off since the start of the year almost into the generally accepted "correction" category.
At its closing level of 6,268.5, down 107.1 on the day, Footsie was 9.5 per cent lower than its end-1999 level. Comparing the blue chip index's worst level yesterday, 6,246.8, with its all-time intra-day high of 6,950.6, then the drop was equivalent to 10.1 per cent. Any decline of 10 per cent or more is normally described as a correction.
Leading the way down yesterday were the big telecom stocks and the banks, with investors reacting badly to Royal Bank of Scotland's decision to increase its offer in the ongoing bid battle for National Westminster.
There was further takeover activity as French building materials group Lafarge said it was making an offer for its British rival, Blue Circle.
The day's domestic economic news did not take much of a toll on the market, but nor did it inspire a recovery; figures for narrow money supply (M0) and for consumer sentiment both indicated a flourishing economy. British interest rates are expected to rise again shortly.
Friday's sharp falls on Wall Street did not help sentiment at the London opening, with investors concerned that the Federal Reserve might increase interest rates by half a percentage point this week, rather than the quarter point previously expected.
And after staging a rally at the start of trading, Wall Street turned mixed with the tech-heavy Nasdaq index off 3 per cent as the London markets were closing.
British shares picked up briefly at the Wall Street opening, only to fall back. The losses in Footsie were reflected in the FTSE 250 and SmallCap indices, with the former dropping 90.5 to 6,181 and the latter 23.1 to 3,160.6. The weakness of Nasdaq weighed on the British technology stocks and the Techmark 100 index slipped 52.55 to 3,708.1.
Deutsche Bank equity strategists say that equity markets are likely to fall by 10-20 per cent this year, with the FTSE 100 index set to test the 6,000 level.
In a note to clients, Deutsche says that, because of the recent rise in bond yields, "equity markets are looking increasingly expensive, even more so than at the time of the market corrections in 1997 and 1998."
Many investors, the bank says, argue that traditional valuation measures are irrelevant or that they cannot foresee a shock sufficient to expose the current high ratings.
Volume was 1.76 billion shares by the 6 p.m. count. Once again, Vodafone AirTouch was by far the busiest stock, with nearly 350 million shares changing hands.
