Dealers fear Footsie may test 5,000 level after more losses

It was another down day for London stocks yesterday, the fourth in a row. There was a worry among some dealers that the FTSE 100 could soon test the 5,000 level less than a week after breaking through 5,400.

The Footsie gave up another 40.8 to 5,120.0, extending its decline over the past four sessions to 249.8, or 4.6 per cent.

The FTSE 250 dropped below 5,900 at one stage, before stabilising to finish 68.3 off at 5,903.8. The FTSE SmallCap lost 11.1 to 2,636.0, while the Techmark 100 retreated 38.83 to 1,522.15.

There were several reasons behind the market's latest slide. The main one was a shock profits warning from Merck, the world's biggest pharmaceuticals group, which triggered a sharp reversal on Wall Street on Tuesday evening. The Merck news saw a near three-figure gain on the Dow Jones Industrial Average transformed into a 33-point loss by the close.

The Dow's earlier strong rise followed the latest cut in US interest rates. The US Federal Reserve's open market committee chopped rates for the 11th time this year, this time by 25 basis points, to 1.75 per cent. Importantly for the market, the Fed said it was remaining on a policy-easing bias, or tilt as it prefers to call it.

The Nasdaq managed to cling on to a minor, single-figure rise and held above the psychologically-important 2,000 level.

Domestic economic news caused few surprises to the British market, with unemployment, as expected, rising by 4,800, while average earnings for the quarter to end-October rose 4.4 per cent, year on year, in line with economists' forecasts.

The Footsie now looks to have reverted into its trading range of around 5,000 to 5,400, with chartists noting "severe overhead resistance" at 5,400 and "solid support levels" down to 4,950.

There was a mixed performance by the various sectors but there was once again strong element of the "new economy" and "old economy" bias in the market, with the more defensive areas attracting support and the TMTs mostly coming under renewed selling pressure.

Turnover in equities was a more-than-reasonable 2.3 billion shares, with telecoms leading the field. Vodafone accounted for 13 per cent of total volume, while BT saw 56 million shares traded and MMO2 accounting for 43 million shares.