The three-day rally in London's equity market was brought to an abrupt halt yesterday, with stock prices diving and wiping out almost all the gains so carefully garnered in the previous three sessions.

The damage to the market's still-fragile confidence came from general disappointment that Alan Greenspan, chairman of the US Federal Reserve, did not make any reference to the possibility of a reduction in US interest rates in his speech on Wednesday. And his statement that there was, at present, no plan to co-ordinate interest rate cuts, was taken badly by Asian and European stock markets.

At the finish of a session of unrelenting weakness, the FTSE-100 index closed 158.8, or 3 per cent, lower at 5,132.9, the fifth-worst points fall on record. The weakness in equities was in stark contrast to big gains in gilts where the yield on the 10-year gilt fell to 5 per cent for the first time since 1957. The market's second-liners and smallcaps also took a hammering, but much less than front-line issues. The FTSE Mid-250 dipped 71.4, or 1.5 per cent, to 5.132.9, and the FTSE SmallCap 19.6, or 1 per cent, to 2,072.2.

London's performance, although dire, was by no means as bad as its European counterparts.

Frankfurt and Paris dropped around 5 per cent, the latter hampered by a shock profits warning from Alcatel.

A series of poor results and profit warnings from a number of leading companies was another factor behind a general rout in the British stock market.

Those disappointing numbers and warnings added to the growing view among analysts that the corporate earnings outlook for this year and next is deteriorating by the day.

And stockbrokers also pointed out that the weakness in the market is "killing off primary business", as one put it. "Much of the corporate activity so painstakingly planned in recent months, is being pulled."

Dealers also took the view that this morning's dual expiry of the FTSE future and index options might well bring further excessive pressures to bear on market sentiment.

The extent of the sell-off took many dealers by surprise with many noting that Wall Street had plenty of time on Wednesday evening to digest Mr Greenspan's comments.

Rather, they said, it was the threat of a spread of the Asian/Russian crises to Latin America that prompted much of the weakness in global markets.

Add in the shock to the Paris market of the Alcatel profits warning, which knocked 38 per cent off the stock's value, and the result was a very bad day for equity sentiment.

The list of winners in the FTSE-100 just crept into double figures, but featured one of the insurance stocks, GRE, long regarded as a takeover target.

The losers' list was headed by British Aerospace, whose share price was crippled by cashflow concerns rather than perfectly acceptable interim results. The company's shares fell 36p to 326p.

Fashion chain Next reported a dive in interim profits of around a quarter, but this was in line with analysts' expectations.

The company also seemed confident that the worst of its troubles were now history - despite early gains, its shares soon started heading down and were 37 1/2p under at 407p.

Rival Arcadia, which owns chains including Burton and Top Shop, fell 19 1/2p to 270 1/2p.

EMI Group said it had decided not to put in a bid for loss-making PolyGram Filmed Entertainment, Europe's largest film producer and distributor, which is being sold by its Canadian parent Seagram. EMI shares rebounded on the news, gaining 1p to 399p.

Turnover in equities was 979.3 million shares by the 6 p.m. count, of which 53 per cent was in non-Footsie stocks.