THE fall out from Friday's poor performance by US treasury bonds and the subsequent 171 point retreat by the Dow Jones Industrial Average continued to reverberate across European markets yesterday.
London's FTSE 100 index fell over 80 points early in the afternoon, with dealers taking avoiding action in case Wall Street embarked on another slide. But Footsie rallied strongly to close a net 35.8 off, at 3,674.5.
The rally was triggered by a gradual recovery in confidence in the US, where the 30 year bond recovered from an early one point decline and the Dow posted an early 44 point rise after a modest initial fall.
The FTSE Mid 250, which measures the performance of the market's second line stocks, eventually settled 40.7 lower on balance at 4,212.0.
Friday's decline came in the wake of a big increase in US jobs, which could mean that the run of interest rate cuts in the US has come to an end.
Once again, traders were split on the market's short term potential. One senior salesman said he felt Wall Street was quite likely to stage another substantial drop, if sentiment in the bond market shifted.
Others were impressed by Wall Street's resilience at the opening of US markets yesterday. "We didn't feel too bad at all at the close and if Wall Street finishes up then we could easily see the Footsie back above 3,700; two calm days on Wall Street and we'll be back at 3,750," one trader said. "There was no client selling of the market, although I have to admit there was precious little buying either."
Turnover in equities remained poor throughout the session. Always thin on Mondays, turnover yesterday was 631 million, and pretty evenly spread between the leaders and the rest of the market. Customer business on Friday was worth £2 billion sterling.
News that US warships were heading for Taiwan in the wake of the heightened tension between Taiwan and China added to the stock market's unease; the Hong Kong market fell around 7 per cent.
The Footsie started 60 points lower, as market makers cut their opening prices to dissuade any potential sellers. Their initial move looked to have been successful, when the index began to rally in the first hour of trading.
Early momentum was quickly lost, however, as European trading saw the US long bond lose a further point, dragging gilts and bunds with it and producing a wave of selling pressure in equities. This built up over lunch and saw the Footsie look like threatening the 3,600 level, before Wall Street's robust opening saved the day.
In a session dominated by the overall market picture, Cable & Wireless featured with a stunning performance, easily out pacing the rest of the FTSE 100 constituents after confirmation that the company has held merger talks with BT. "C & W is now most definitely in play. Wait for the US bids," said one market maker.
