Wall Street drags Footsie down

Weekend talk that the Bank of England was now virtually certain to cut interest rates on Thursday seemed to offer the scope for the UK stock market to snap out of its recent slump yesterday.

But after some early stability, Wall Street's opening weakness dragged share prices in London lower in the afternoon session. The FTSE 100 index recorded its third successive three-digit decline, falling 101.7 to 4,648.7, its lowest level since June 1997.

Traders said the market was faced with a virtual absence of buyers, and signs that small investors were starting to dispose of their holdings, particularly in the small-company sector.

The FTSE SmallCap index underperformed the blue chips, falling 49.5 or 2.6 per cent to 1,864.7. But the FTSE 250 index was more robust, dropping 38.3 or just 0.9 per cent. Engineering and industrial stocks, which are heavily weighted in the index, were lifted by the decline in sterling, which fell 3 pfennigs against the deutschmark and around 1 per cent on the trade-weighted index.

The pound's weakness owed much to strong hints in the weekend press, and some clear prompting from Mr Gordon Brown, the Chancellor of the Exchequer, that the Bank of England's monetary policy committee may cut interest rates when it meets on Thursday.

That hope allowed the UK market to make a modest rally when trading opened, despite some further losses in Asian markets. By mid-morning, Footsie was 29.4 ahead at 4,779.8.

But London was unable to escape the dead hand of international sentiment.

Turnover at 6 p.m. was 835.8 million shares.