The FTSE 100 index succumbed to selling pressure and subsided to its lowest closing level since October 1998, at the height of the emerging market crisis. The blue-chip benchmark slipped below the lows recorded in March, disappointing those who believed that the first quarter might have seen the worst levels of the year. At the close, Footsie was off 44.7 at 5,275.1, almost 24 per cent down from its end1999 peak. And the bad news did not stop there.

The FTSE 250 index fell below the 6,000 level for the first time since early April. And the Techmark 100 index dropped 26.37 to yet another all-time low of 1,477.02.

A promising second quarter rally fizzled out as it became clear the Bank of England was unlikely to cut interest rates again in the short term.

The corporate sector played the main part in depressing sentiment yesterday. Energis, the telecoms group, said first half revenue growth would be weaker than expected, prompting a 20 per cent fall in its share price. Abbey National shares were marked down nearly 10 per cent on concerns about a rise in the bank's bad debt provisions. Other banks were marked lower in response. Sainsbury, the supermarket group, slipped 4.7 per cent and dragged down the rest of the sector, telecoms leader Vodafone slipping to its lowest since 1998. However, BSkyB, the satellite TV group, saw the market react positively to its results, which showed a near doubling in operating profits.

The latest economic data were mixed. The Confederation of British Industry survey showed that, while overall business confidence had improved, there was a deterioration in sentiment among exporters.

European markets were also weaker, with Paris slipping to its lowest level since October 1999.

The main hope for a market rally will be a turnaround in the outlook from the corporate sector. But the Invensys warning on Tuesday has worried investors that, far from recovering in the second half, profits may be due for a further decline. Turnover once again topped the 2 billion share mark. Vodafone and Invensys contributed more than a fifth of the total.