Market sapped of will to advance

THE looming Parliamentary vote on the Scott report into the arms for Iraq scandal, another dose of weakness in global bonds and a steep early slide on Wall Street gnawed away at the London market's confidence yesterday.

London's marketmakers were nervous about holding large lines of stock on their books. By the close, the FTSE 100 index managed to scramble off its lowest levels, but was still left with a net loss of 36.1 at 3,704.2.

The wholesale retreat by the leaders did not spill over too much into the second liners, where lingering hopes of more takeover activity helped underpin sentiment. Nevertheless, there was sufficient selling pressure to drive the FTSE Mid 250 below the recently won 4,200 level to close 13.0 off at 4,195.0.

The general feeling around the marketplace yesterday was that London had factored in most of the potential bad news, certainly that on the political front. "The government may just about squeak through on the Scott report, but even if it loses the vote it should survive a confidence vote," said the head of marketmaking at one securities house.

He also noted that London in common with most of the European stock markets, had not mirrored Wall Street's upward move late last week. "Wall Street is becoming increasingly volatile and volatility normally spells danger for markets," he said.

Another trader said, however, that there was a number of sizeable short positions in London, which, if unwound, could trigger a bounce in the market. Most traders said they saw 3,700 on the Footsie as a good resistance level and said London was a strong buy at 3,650 on the Footsie.

Wall Street's dizzying performance on Friday, which saw the Dow Jones Industrial Average race up 50 points, drop back sharply and then close 22 points higher, did nothing to calm the London market's nerves.

The Footsie opened the session 8.5 lower and continued to lose ground for the rest of the day, stabilising only during the last few minutes of trading, despite a sharp fall in the Dow at the outset of trading; the US average fell over 50 points shortly after the start, before rallying and then falling back again.

There was no support for equities from a gilts market suffering from the same symptoms as equities, and additionally weakened by the latest sell off in US Treasury bonds on Friday, when the long bond dipped around a point.

Turnover, always restrained on Mondays, came in at 639 million shares, with non FTSE 100 stocks accounting for 57 per cent of the day's business. Customer business on Friday was worth £1.7 billion sterling.

British Steel delivered another good performance, with the market increasingly excited by the prospect of a share buy back. On the downside, the banks took something of a hammering, wounded by the prospect of shrinking margins.