Footsie poleaxed by negative start in US

The UK stock market was hit hard at lunchtime yesterday by the news of stronger-than-expected US inflation figures, which made it clear that Wall Street would be off to a shaky start. The tentative hopes of a rally that emerged on Thursday were quashed as the FTSE 100 extended its decline, closing 178.9 off at 6,178.1.

The US consumer prices data were higher than expected at both the headline and core levels. Not only did this raise fears that the US Federal Reserve would have to raise interest rates by half a percentage point in May, it undermined one of the pillars of the long equity bull market: that the US economy could grow at a rapid pace without inducing inflationary pressures. That rattled Wall Street, with the Dow Jones quickly dropping more than 250 points and the Nasdaq 150 points.

Although they rallied for a while, they were both around 300 points lower not long after the London close. Nasdaq's weakness translated into another big drop for the Techmark 100 index of UK technology stocks. It fell 194.9, or 5.2 per cent on the day, to 3,528.13, bringing its loss for the week to 19.7 per cent.

However, there were more subdued losses for the FTSE 250, off 45.9 at 6,222.1, and the SmallCap, down 32.4 at 3,207.6. Traders said they were still not too worried by the market's fall, given that turnover was just 1.68 billion shares by the 6 p.m count.

The FTSE 100 index remains in the 6,000-7,000 range, in which it has held steady since the start of 1999. But there were losses for some of the recent hot stocks as speculative investors rushed for the exits.

Baltimore was down 24 per cent, Psion off 22 per cent and QXL.com down 15 per cent. Many techs have now fallen more than 50 per cent from their peaks.

Such declines may have discouraged some of those private investors who started to move heavily into the market last November, and who have been particularly active in the smallcap and Internet-related areas. The main corporate news of the day was the report that BP Amoco has clinched the purchase of Arco, which means that the oil giant's weighting in the FTSE 100 is set to rise to 8.5 per cent from 7.5 per cent.