Footsie falls 3.5% as the sell-off gathers momentum

The mood in London's stock market grew even darker yesterday as investors continued to shy away from stocks in the wake of the worsening economic and political outlook post the terrorist attacks in the US.

All the main indices sustained further heavy blows with the benchmark index, the FTSE 100, sliding below the 4,600 for the first time since October 1998, when global markets were reeling from the effects of the Russian debt default and the collapse of Long Term Capital Management.

There were equally damaging losses in the FTSE 250 and SmallCap indices, which fell to their lowest levels since January 1999, while the Techmark 100 index fell to yet a record low.

The FTSE 100 ended the day a net 164.8 or 3.5 per cent down at 4,556.9, having fallen 198.2 to 4,523.5 at its worst, while the FTSE 250 dropped below the 5,000 for the first time since January 1999 and closed a massive 183.3, or 3.5 per cent off at 4,994.4. The Techmark 100 plummeted 52.49 or 4.5 per cent to a record low of 1,110.84. But it was the FTSE SmallCap that took the worst buffeting, plunging 104.1 or 4.8 per cent to 2,162.0.

Dealers said that the sell-off that has engulfed global markets in the wake of the attacks on New York and Washington had gathered momentum in London yesterday, a view backed up by a dramatic increase in turnover. Volume in London expanded rapidly throughout the day, eventually reaching 3.4 billion shares, the highest this year, at the 6pm cut-off point.

"The institutions have been aggressive sellers today, via derivatives, programme trade activity and straightforward selling," said one marketmaker. "But it was much much worse in the mid and smallcaps where some fund managers were selling at any price. That is madness in markets like these."

He said the market was bracing itself for even more intense activity this morning when the September FTSE 100 future expires in mid-morning. Some market observers said the latest reversal in the market might represent a final sell-off frenzy. Others, however, took the view that events in the US last week merely accelerated the underlying and fundamental problems that were already affecting markets.