LONDON'S equity market was given another pasting yesterday, absorbing its sixth consecutive decline as fund managers and marketmakers ran for cover ahead of today's meeting of the US Federal Reserve's Open Market Committee, which decides monetary policy.
The consensus around the City's dealing, rooms favoured a rate rise of 25 basis points. Some of the market's doomsters feared such a move might, if followed by further increases, trigger a repeat of the February 1994 retreat by global bond and equity markets.
Marketmakers said a rise in excess of 25 basis points would cause problems for Wall Street while no change would be seen as merely a postponement of the bad news.
The FTSE 100 ended the session exactly 40 points off at 4,214.8, extending the fall over the six trading days to 208.5, or 4.7 per cent. The FTSE 2,50 dropped a further 28.1, a decline of 170.9 or 3.6 per cent over the six days, while the SmallCap index, down 8.6 yesterday at 2,312.1, was 53.1 or 2.2 per cent lower over the same period.
Dealers said many fund managers were attempting to lock in profits and secure the value of their, portfolios as the quarter and the financial year drew to a close.
Equities drew no real comfort from the gilts market which along with international bonds, staged a useful rally during the afternoon, shifting into positive ground towards the close.
Earlier, gilts had deteriorated despite excellent news on the domestic economy. Fourth quarter gross domestic product was revised to show a 2.6 per cent increase for 1,996 while an £873 million sterling current account surplus left the 1996 deficit at a mere £14 million. The gilts market is now preparing for Wednesday's auction of £2.5 billion-worth of 10-year gilts.
With gilts labouring at the start of the day equities were unable to build on a positive opening which had seen the FTSE 100 edge around 10 points higher.
BAT, the tobacco group, built strongly on last Friday's rally, chased higher by a number of brokers who said the shares had been oversold.
Many of the financial stocks remained under intense pressure, although traders expect a short term bounce in the sector after the recent underperformance.
Mr David Schwartz, stock market historian and author, of Bull Market Buy Signals, said there had been 40 occasions since 1,935 when the market fell six sessions in a row and by between 3.5 and 5 per cent. On two out of every three occasions these successive falls have occurred, in a bear market, which he defines as a fall of 15 per cent or more.
"History, says the odds are high that this is more than a temporary market correction," Mr Schwartz said, pointing out that the bigger the percentage fall during the six sessions, the higher the odds are, on a bear market.
