A big tussle between the market's bulls and bears lasting most of the morning saw the latter emerge on top yesterday, with early weakness on Wall Street adding to the market's unease.
The US reacted to the Hewlett-Packard profit warning and core inflation higher than the consensus estimate. At its worst in London trading hours, the Dow Jones Industrial Average was off nearly 100 points.
But the bears in London only got their way with the leaders; the market's second and third-line stocks, represented by the FTSE Mid-250 and SmallCap indices, maintained their progress to hit record intra-day and closing highs.
The FTSE Mid-250 took a determined run at the 5,800 level but then faltered. Nevertheless, the index settled 6.7 ahead at a record intra-day and closing high of 5,795.6, its fifth straight advance.
The performance of the FTSE SmallCap was just as impressive, with the index registering its twelfth consecutive gain. It finished 5.5 up at a record closing high of 2,749.2, having hit a peak of 2,749.5.
The overpowering influence of the FTSE-100 constituents left the FTSE All-Share index 7.8 lower at 2,819.2. The FTSE-100, meanwhile, closed an erratic trading session 24.4 lower at 5,948.5, having dropped to a session low of 5,898.6 at its worst, minutes after Wall Street opened.
Leading stocks managed to make modest progress at the outset, with the bulls pointing to Wall Street's rise on Wednesday, which saw the Dow move up more than 50 points to its first close above the 9,200 level.
But news of more rioting in Indonesia and worries about interest rates both in Britain and in the US continued to nag away at the market's confidence, which eventually cracked decisively on the downside in late morning.
Mr Jeremy Batstone, head of research at NatWest Stockbrokers, said: "Indonesia looks like a disaster in the making. The big concern is that it could lead to a slowdown for Hong Kong's economy with other markets being impacted. We are expecting the news to get worse before it gets better."
Meanwhile, British defence manufacturer Alvis, up 3p to 192 1/2p, denied supplying the Indonesian government with armoured vehicles after it came under fire from pressure groups.
Dealers insisted that the selling pressure in the FTSE-100 constituents was never substantial. "The market is very choppy and it's all to do with the interest rate concerns but it doesn't feel excessively weak. If anything it feels sound underneath," said a senior trader at one of the big European stockbrokers.
Worries about delays to a possible cut in British interest rates were revived on Wednesday after news of a much higher-than-expected increase in average earnings in February and unit wage costs in the March quarter.
There was more takeover news in the smaller companies arena with Arlen, an electrical engineering group, revealing it had received a number of approaches.
But it was not all positive news in that area, with more profit warnings arriving on the scene after the four that were announced on Wednesday.
The technical analysis team at Merrill Lynch said: "With much of the UK market overbought on medium/longer-term criteria, the laggard groups are finally starting to benefit from momentum upturns."
Merrill picks out the media, building materials, diversified industrials, distributors, E&P oils, and paper and packaging as attractive.
Meanwhile, Chelsea's victory in the European Cup Winners Cup saw shares in parent Chelsea Village gain 1/2p only to fall back to its previous 83p level as it brought some welcome European silverware back to British soil. First division Sunderland gained 32 1/2p to 517 1/2p after its victory against Sheffield United saw it win a place in the play-off finals.
Shares in defeated Sheffield United were relegated 2p to 30p.
Sunderland will meet Charlton Athletic, up 6p to 60p, which edged past Ipswich in the play-offs.
