The Russian debt restructuring plan, which some investors regarded as almost as bad as a default, sent share prices tumbling round the world yesterday and put paid to the short-lived rally in London.
Two solid days in the British stock market had helped the FTSE 100 index gain more than 177 points, almost wiping out Friday's 190.4 point loss. But like the Greek legend Sisyphus, condemned till eternity to push a ball up a steep hill, the market's great efforts proved futile as share prices rolled downwards once more.
Footsie closed 109 points down at 5,545.4, having been as much as 152 points lower, at 5,501.7 in mid-afternoon.
Medium and smaller-sized stocks were also badly affected, with the FTSE 250 index slipping 76.7 to 5,023.6. That was its lowest level since February. The SmallCap index fell 34.4 to 2,251.4, bringing its decline since the all-time high in May to 19.4 per cent.
International factors out weighed any domestic news including trade figures for June and July, which were broadly in line with expectations. Unlike recent sessions, there were no new bids to keep traders happy.
Stock markets fell around Europe, particularly in the banking sector, as investors worried about the effect on balance sheets of the restructuring plan. Wall Street kept up the pressure when it opened, with the Dow Jones Industrial Average dropping more than 100 points in the first few minutes of trading.
Footsie could not resist the pressure, dropping more than 100 points by lunchtime and maintaining the three digit loss for much of the afternoon, save for a brief period when Wall Street seemed to be rallying. Only 11 Footsie constituents managed to be higher on the day.
Volume was low once more with 671.8 million shares by the 6 p.m. count, of which 41 per cent was in non-FTSE 100 stocks. Hope remained that the market may perk up next week when institutional investors return to their desks after the August holiday period.
Mr Kevin Gardiner, UK strategist at Morgan Stanley, said he believed "the UK ought not to be penalised on account of Russia and Asia on the same scale as other markets. But there is quite clearly no appetite for risk among institutional investors. We believe the UK market has value in it, particularly over the longer term".
But one leading institution was less optimistic. Mr Peter Chambers, head of active equities at Gartmore, the fund management group, says the British market will be in a gentle downtrend for the immediate future.
"You don't have the earnings growth to support the market. We expect 05 per cent earnings growth in the UK this year and next. The market has lost direction and is prey to international events, which is why it has been so volatile," he said.
