The wave of selling that swept around world stock markets caused share prices in London to capsize yesterday, prompting the first three-figure fall in the FTSE 100 index for a month.
Shares were on the defensive from the outset; Wall Street's 150point fall on Tuesday was followed by a drop of more than 5 per cent in Hong Kong, as worries mounted about a recession in the former British colony.
During the day, there were further worries from Russia, where the central bank tripled interest rates in order to defend the rouble, and from other European bourses, which dropped by 23 per cent.
Mr Mervyn King, the Bank of England's chief economist, did not help sentiment by saying to the Building Societies Association conference that there was "a risk that consumption may prove stubbornly buoyant" and by referring to recent average earnings numbers as "undoubtedly disappointing".
The comments increased investor nervousness before next week's monetary policy committee (MPC) meeting. In April, Mr King was one of the three MPC members to vote for a rate increase.
Mr King's comments weighed on the gilt market, which finished slightly lower on a day when world bond markets were generally benefiting from the "safe haven" effect.
As the final straw for London, Wall Street opened sharply lower once more, with the Dow Jones Industrial Average falling more than 90 points in the first 10 minutes. A rally failed to hold and at the London close the Dow was 115 points lower. The world market seemed to be feeding on itself, with weakness in one region being passed on to another.
All this bad news meant that, once the British market had dropped 100 points after the first hour of trading, it showed a three-figure loss for most of the day. At its worst, Footsie was 133.8 points lower at 5,836.9. By the close, the loss was 100.5 to 5,870.2.
Even the FTSE 250 and SmallCap indices, which have repeatedly outperformed the Footsie in recent sessions, suffered in the carnage. The SmallCap shed 19.5 to 2,773.2. The 250 index lost 40.1 to 5,880.8, but still finished higher than the 100 index for the first time since May 1997.
Mr Richard Crehan, UK strategist at Morgan Stanley, said Footsie seemed to be stuck in a 5,800-6,000 range. "A lot of people anticipated a market advance to 6,000 this year, but it got there within four to five months. Interest rates look likely to be flat for a while and until we see a significant event, it is hard to see what will drive prices out of the range."
Individual company movements were swamped by the overall market fall, although two index entrants - Halifax, which is just about to join the MSCI, and Misys, which recently qualified for the Footsie - managed to rise against the market trend.
Banks, notably HSBC and Standard Chartered, the two with strong Asian links, were among those taking the biggest hits.
Volume was 858.8 million by 6 p.m., of which 53 per cent was in non-Footsie stocks.
