City continues to prepare for rate rises

There was no relief for a beleaguered stock market yesterday as the threat of a global round of interest rate rises continued to erode investors' rather fragile confidence. "It was a really messy day in the market," a salesman said. "Losses were by no means catastrophic, but it felt uncomfortable and will continue to do so until we get the interest rate stories out of the way."

The FTSE 100 followed up Tuesday's 164.9 or 2.5 per cent decline with a further 59.2 fall to 6,445.4. The FTSE All-Share dipped 28.15 to 3,069.72.

But by far the worst performance of the FTSE indices came from the FTSE 250, which dropped 71.9 to 6,495.5. The FTSE SmallCap retreated 11.6 to 3,244.1.

The latest weakness in the market stemmed from the US where Wall Street gave a decidedly mixed showing on Tuesday. The Dow Jones Industrial Average dropped 162 while the Nasdaq Composite powered ahead, almost notching a record.

Wall Street continued to test the nerves of the market's bulls, jousting on both the upside and downside but posting a 30-point slide as London trading drew to a close. However, once again the Nasdaq Composite remained in positive territory as the Dow floundered.

The global interest rate worries were never far from dealers' minds. Rising bond yields in the US and elsewhere are being interpreted as a signal that interest rates may be going up. The next big interest rate meeting takes place this morning when the European Central Bank gathers in Frankfurt to debate euro-zone rates. Most economists expect the ECB to leave rates on hold for the time being, but only in the short term.

The market also has in its sights the next meeting of the US Federal Reserve's open market committee, scheduled for February 1st and 2nd, and the Bank of England's monetary policy committee meeting scheduled for February 9th and 10th. Dealers said rises in rates after all three meetings "are a possibility, although the odds favour the US and UK first".

The day's economic news did not contribute to market problems. On the contrary, average earnings for the three months to the end of November were the same as in October, up 4.9 per cent year-on-year. The decline in unemployment was in line with market forecasts.

The fall in the FTSE 100 would have been even worse but for good gains in the oil majors, in the wake of renewed strength in crude oil prices, and a rally in the soon-to-merge Glaxo Wellcome and SmithKline Beecham.

Turnover in equities was 2.3 billion shares.