Weak banking stocks and some poor news on inflation helped send the FTSE 100 to its second consecutive loss yesterday.

Retail inflation figures for September showed a faster rise in prices than expected, with the underlying annual rate moving up to 2.2 per cent from 1.9 per cent in August and the headline rate jumping to 3.3 per cent. The figures were not well-received by the market and the FTSE 100 lost its opening gains to slip into negative territory just after the data were released. There was some debate about the extent to which higher petrol prices were responsible for the increase.

Philip Shaw, UK economist at Investec, said: "We would argue that the rebound in inflation is not wholly due to petrol. The increases were broader-based. For example, household goods prices rose by 1.5 per cent after the end of the sales. With the monetary policy committee's longer-term inflation angst unlikely to disappear, we remain reluctant to call the top of the interest rate cycle and suspect a further modest increase is on the cards." Meanwhile, the decision by Halifax to increase its current account rate to 4 per cent sparked fears of a retail bank price war. The sector was also hit by continued rumours of junk bond losses and fears that a weaker economy might worsen the industry's bad debt position. Four out of Footsie's five worst performers were banks.

On the international front, the UK market failed to get a significant lift from Wall Street's late recovery on Monday. When the US market opened yesterday, the Nasdaq Composite headed lower again on renewed fears about corporate earnings.

Although the Techmark 100 index did manage to regain some of Monday's losses, bouncing 25.75 to 3,618.88, the FTSE 100 failed to sparkle. It followed Monday's triple-digit loss with a 17.1 fall to 6,247.7, leaving the index almost 10 per cent down on its end-1999 level.

The other FTSE indices were mixed. The FTSE 250 rose 19.6 to 6,596.3 while the SmallCap fell 9.3 to 3,346.9.

The latest Merrill Lynch survey of UK fund managers found that investors have turned negative on the profit outlook for the first time since March 1999. But they remain buyers of UK equities, with more managers saying UK shares are undervalued than at any time since October 1998.