There were no surprises for the stock market with the news that the Bank of England's monetary policy committee had sanctioned a 25 basis points cut in British interest rates. Already down 115 ahead of the news, the FTSE 100 dropped a further 40 within seconds as the stock market registered its displeasure at the limited extent of the cut.
The underlying weakness was painfully exposed later in the session when a poor opening by Wall Street, which quickly retreated in excess of 100 points, took London and other European stock markets with it. Later in the US session, the Dow was off approaching 300 points.
European markets and Tokyo sold off heavily in response to a sharp fall in the dollar, which threatened export prospects in both regions.
At its worst, Footsie was down 229 points and looking likely to challenge its biggest-ever points fall in a single day, 250.7, which occurred the day after the great crash of October 19th, 1987. The British market's benchmark index staged a decent rally towards the close, eventually settling 130.0 or 2.7 per cent off at 4.698.9.
The other FTSE indices also took a hammering, with the FTSE 250 posting a rare three-figure fall and finishing 109.0, or 2.5 per cent, lower at 4,251.2. The FTSE SmallCap, which has taken more pain than its senior FTSE indices over the past month, dropped 27.5, or 1.5 per cent, to 1,838.5.
Dealers in small-cap stocks said there was absolutely no sign of a rally in the shares, which are now suffering from an even more severe liquidity crisis.
Dealers said the reduction in interest rates had already been factored in to stock prices and that it would have taken a 50 basis points cut at least to stimulate any buying interest in a market already suffering from another severe dose of nerves after Wednesday's comments by Mr Alan Greenspan, chairman of the US Federal Reserve.
Mr Greenspan said the US economy had deteriorated further because of the global financial crisis. That was interpreted by markets as a hint that US interest rates, which were cut by 25 basis points two weeks ago, would be cut again.
For once, economic worries outweighed the possible lift from lower rates. And the markets were also dogged by the now routine rumours about potential bank/hedge fund failures. Market-makers warned of even more pain to come in the British market.
"It certainly feels as if we haven't seen the worst of it yet," said one dealer. "Wall Street holds the key to global markets and it is creaking at the seams, especially after Greenspan's latest comments. Domestically a 25 basis point cut is not enough to bring the buyers back into the market; it is not yet time to chase the market."
The news flow deteriorated further with a profits warning and writedown from Citigroup, the US bank, which is merging with Travelers.
British Aerospace fell 5 1/2p to 359 1/2p, Siebe fell 6p to 196p and LucasVarity lost 5 3/4p to 171 1/4p. Turnover in equities was busy again, reaching 1.14 billion shares by the 6 p.m. count. Among individual stocks, Leicester City posted an impressive set of maiden results figures. Its shares, which only months ago stood at 114p, edged up a penny to 35 1/2p on the figures, despite the fact that manager Mr Martin O'Neill is being pursued by Leeds United.
A miserable trading statement from sportswear and packaging group Robert H Lowe pushed shares back 3p to 3 1/4p. The troubled company reported higher than previously anticipated losses in its sportswear division and the axing of 300 jobs at nearly all its manufacturing sites.
Biggest risers of the day included Standard Chartered up 29p at 470p, Safeway up 11 1/2p at 294 1/2p, Stagecoach up 39p at £11.20 and Billiton up 4p at 134 3/4p.
Largest fallers included Prudential Corporation down 75p at 638p, Misys down 36p at 332p, Securicor down 26p at 335p, Glaxo Wellcome down 104p at £15.14 and Orange down 28p at 417p.
