Slump continues on back of bad US profits news

More bad news on corporate profits from the US and some disturbing domestic economic data ensured another bad session for the London stock market yesterday. A profits warning from food manufacturer HJ Heinz allied to fears that the General Electric-Honeywell merger might fall through because of European regulatory concerns, combined to send Wall Street lower in early trading. By the London close, the Dow Jones Industrial Average was down more than 130 points and the Nasdaq Composite had dropped more than 50 points.

The FTSE 100 index was dragged down in the afternoon by Wall Street's weakness, hitting a low of 5,734.6, off 85.6. Even a late recovery still left the blue-chip benchmark 67.7 points down at the close at 5,752.5. The index has lost nearly 200 points this week and hopes of a bounce-back through 6,000 seem to have been dashed in the short term.

The London market was in the red even before the bad news had filtered through from Wall Street. Retail sales figures for May were much stronger than expected, showing a 0.8 per cent rise on the month and a 6.4 per cent gain on the year. The figures appeared to confirm the impression of a two-tier economy in which the manufacturing sector continued to struggle but consumer demand remained strong.

After the higher-than-expected inflation data released earlier this week, investors are increasingly taking the view that the bottom of the interest rate cycle may have been reached.

The interest rate outlook was one reason why sentiment in London was depressed, but there was also talk that KPN, the Dutch telecoms group, was about to place its stake in Vodafone. Shares in the mobile telecoms company fell 4.2 per cent to a two-year low. Other telecoms such as Colt Telecom, also suffered.

The technology stocks came under further pressure, as French chip-maker STMicroelectronics followed up Tuesday's profit warning from Nokia with its own gloomy forecast. The Techmark 100 index fell heavily again, dropping 63.55 to 1,890.52. Autonomy and Psion both suffered double-digit losses.

The pain in the market was widely spread, with the FTSE 250 down 79.4 at 6,453.7 and the SmallCap off 18.2 at 3,108.2.