FTSE steadies as US figures create volatility

The FTSE 100 index ended the day in positive territory after a volatile afternoon during which US news was once again dominant.

The US non-farm payroll figures, released at 1.30pm London time, were initially seen as encouraging.

The figures showed that 105,000 new jobs were created in December, roughly in line with forecasts. Some in the market had worried that the US Federal Reserve's rate cut on Wednesday had been prompted by excessively weak employment news.

The FTSE 100 reached its best level for the day of 6.239.6, up 54.0, just after the US figures were released.

But while the data hardly pointed to recession (the unemployment rate was unchanged at 4 per cent), the hourly earnings data were stronger than expected, rising 4.2 per cent year-on-year.

That may indicate two things - the Fed will still have to keep a wary eye on inflationary pressures and the corporate sector may find its profits squeezed between slowing demand and rising wages.

In any case, the payroll figures were quickly overshadowed by rumours that Bank of America was about to reveal heavy derivative-related losses.

Traders' worst fears appears to be confirmed when Bank of America shares did not open in New York pending a news announcement. The Dow Jones Industrial Average shed more than 200 points and the FTSE 100 index dipped into negative territory. But the statement from Bank of America, when it came, was reassuring.

Nevertheless, Wall Street remained pretty sickly for the rest of the London session. The Footsie only just scraped into the black, closing 12.5 points ahead at 6,198.1.

The other indices were mixed. The FTSE 250 rose 8.8 to 6,589.1 but the SmallCap fell 2.5 to 3,174.6 and the Techmark 100 of leading technology stocks dropped 11.24 to 2,448.63.

The euphoria that followed the US rate cut on Wednesday seems to have quickly evaporated.

"What you're seeing now is a realisation that one interest rate cut does not halt the earnings downgrades," said Ian Harnett, a strategist at UBS Warburg.

Investors remain concerned about the potential for a squeeze on profit margins and for a credit crunch in some sectors.

There was not as clear a trend in favour of the new economy stocks as there had been on Thursday. Autonomy was the best performer in the Footsie, on the back of a positive trading statement, but Sage was the worst.

Domestic news was fairly light. Heavitree Brewery was the latest company to issue a profits warning. Turnover once again topped the €2 billion share mark with signs of programme trading as institutional investors readjusted their portfolios for the new year.

Some 2.11 billion shares were traded by the 6pm count, with around two-thirds of the business conducted in FTSE 100 stocks.