Two-day slide in UK stocks halted by good news from US

The two-day slide in UK stocks was brought to a halt yesterday as the market successfully fought off another dose of early selling pressure and finished the day in reasonably good heart, bolstered by some better than expected economic news from the US.

But there remained plenty of scepticism among domestic investors about the London market's ability to hold above the 5,000 level, given the long list of bearish influences that have been gnawing away at the market's confidence in recent months.

Dealers said London had taken plenty of pain on Monday and Tuesday and that the 3.5 per cent decline in the FTSE 100 over the two sessions had factored in the worst case scenario for the US economy.

Data showed that US gross domestic product had dipped an annualised 0.4 per cent in the third quarter, much less than the consensus forecast. And the Chicago purchasing managers' index was also better than the market had been expecting.

That news saw the Dow Jones Industrial Average post a three-figure gain early in the US session, helping to invigorate London, where the FTSE 100 almost gained 100 points, although both markets later subsided.

It was a relatively quiet day for company news although Sir Peter Bonfield's departure from BT, as of January, brought an instant and positive response. On the sell side, Matalan, the discount retailer, led the FTSE 250 losers' list after a disappointing trading update, which detailed a sharp slowdown in sales.

Merrill Lynch was the latest broker to adopt a more bullish view of the market. Khuram Chaudhry, UK equity strategist at Merrill, said: "UK equities have rallied 13 per cent since September 21, which we believe established market lows. Investors have been willing to give the market the benefit of the doubt, hoping for an economic recovery in 2002. We have some empathy with this outlook given lower interest rates, oil prices, credit spreads and earnings per share expectations.

"At the same time, most investors appear sceptical that the current rally will gather momentum. If anything, this suggests 'the rally' may have a little more steam than investors are currently discounting." Turnover in equities was 2.1 billion shares.