Strong gains by many technology and telecoms stocks stopped the FTSE 100 suffering an even more dramatic loss yesterday.
The market was hit by a sequence of worrying developments, notably the growing fear that British interest rates are set to rise after next week's meeting of the Bank of England's monetary policy committee. Most economists expect the committee to sanction a 25-basis-point increase in rates to 6 per cent.
Such a rise will complete a trio of international increases, which started on Wednesday with the Federal Reserve's open market committee nudging US rates up by 25 basis points. That was followed on Thursday by the European Central Bank's decision to raise rates in the euro zone by the same amount. Other stories also caused unease in the market. US bank stocks were hit hard by rumours that many traders had suffered severe losses as a result of the US government's decision to buy back $30 billion of bonds this year, prompting a steep rise in the 30-year issue.
That added to the downside pressure on an already weakened British banking sector. The latter has underperformed substantially in recent months, burdened by intense competition in the mortgage market, the threat from Internet banking and rising interest rates.
To make matters even worse for the FTSE 100, its two biggest constituents, BP Amoco and Vodafone AirTouch, both continued to lose ground. Turnover in Vodafone reached epic proportions, with 1.3 billion shares changing hands, easily a record for the London market. Overall turnover was 3.4 billion shares, another record.
The FTSE 100 rose more than 40 points during the first five minutes of the trading session, propelled upwards by an initial upsurge in Vodafone, but a sharp reversal wiped out that rise. Thereafter, the index never looked remotely like retrieving the situation.
The latest onslaught against the banks and other financials drove the index down to a low of 6,171.2 before Wall Street's performance helped the index claw back some losses, to finish a net 139.3 down at 6,185.0.
The drama in the leaders did not spill over fully into other stocks. The FTSE 250, also bolstered by gains in many hi-tech and Internet stocks, settled only 18.3 lower at 6,148.0. Similarly, the SmallCap index performed very well, eventually posting a 4.3 gain at 3,164.2. The FTSE All-Share lost 53.88 to 2,942.01.
