Continued falls in world stock markets yesterday proved to be the dominant factor in London, despite the eagerly-awaited statement from Gordon Brown, Chancellor of the Exchequer, about Britain's attitude towards European Economic and Monetary Union. Mr Brown indicated, as expected, that Britain would not join a single currency in 1999 and, while in favour in principle, was highly unlikely to take part during this parliament's lifetime.
When the Chancellor started speaking, the FTSE 100 index was 80 points down on the day. And, just like the previous Monday when he launched the new trading system, the screens turned red during his oration.
But investors could hardly blame Mr Brown. The market was taking fright at another sharp fall on Wall Street, with the Dow Jones Industrial Average down 180 points by the time London closed, and weakening further in later trading.
Footsie finished at its low for the day, down 129.5 or 2.6 per cent at 4,840.7. It is now over 500 points or 9.8 per cent below its October 2nd intra-day peak.
The effect of Wall Street's 132point fall on Friday and the renewed weakness of the Far East markets weighed heavily on London at the start of trading. The FTSE 100 index dropped more than 70 points by 9 a.m. and was over 111 points adrift by 1 p.m. Although the market steadied somewhat ahead of the statement from Mr Brown, Wall Street's weakness wiped out that recovery.
Gilts were weaker in the wake of the Chancellor's statement, showing losses of about half a point, and sterling strengthened; neither factor was helpful for shares.
There were signs of a "flight to quality" around the world, with emerging market bonds and equities taking a hammering in Latin America as well as Asia.
And just to add to investors' woes, a sharp fall in gold and other metals prices hit mining stocks such as Rio Tinto and Billiton.
"I can see all markets floundering for the moment. The Asian problem is property-related and won't be resolved easily, investor sentiment has taken a knock and we've still got to get past the issue of whether US interest rates are going to rise," said Mr Bob Semple, UK strategist at NatWest Securities.
Mr Ben Heaton, a technical analyst at stockbrokers Durlacher, who called the top of the market at 5,365 (it actually peaked at 5,367), is sticking with his prediction that Footsie will fall to 4,200. In fact, Mr Heaton, who studies fractal patterns, thinks the fall could take place within the next month.
Smaller company shares were spared the worst of the blood-letting yesterday, with the SmallCap index dropping only 17.5 or 0.7 per cent to 2,362.9. The FTSE 250 index shed 69.1 or 1.4 per cent to 4,767.6.
