London's equity market was shrouded in gloom for much of yesterday after suffering a series of confidence-sapping blows and failing to respond to a cut in domestic interest rates announced at midday. But the FTSE 100 stabilised and rallied strongly during the latter part of the afternoon as Wall Street began to show signs of picking itself up from the floor after a benign set of inflation data. The Dow Jones saw an early 45 points retreat reeled in and transformed into a gain of similar proportions not long after London closed.

At the end of another fraught session the FTSE 100 was down 50.2 at 4,848.7. At its worst it fell 126.7 to 4,772.2. But the rest of the market remained under almost relentless selling pressure.

The FTSE 250 posted its ninth down day in the past 10 sessions. Over that period the index has plummeted a massive 828.1, or 13.6 per cent, compared with a 9.9 per cent fall in the FTSE 100 over the same period. It was the same for the FTSE SmallCap extended its decline over the 10 days to 13.6 per cent.

The Techmark 100 plunged to yet another record low, ending the day 43.5 off at 1,199.39.

The 25 basis points reduction in UK interest rates, the fifth so far this year, came after a sequence of cuts from G-7 members which started with Monday's 50 basis points reduction by the US Federal Reserve and was followed by the European Central Bank and others.

The London market's failure to respond positively to the news reflected the disappointment that the cut was not the 50 basis points that had been widely expected at the start of the session. Before the rate cut, sentiment in London had been badly affected by the extent of the losses on Wall Street on Monday, after London had closed.

The August UK inflation data came in worse than expected with the core inflation figure moving unexpectedly above the government's 2.5 per cent target for the first time in more than two years. Commenting on the inflation data and subsequent rate cut, Ian Stewart, UK economist at Merrill Lynch said it was "risks to the global economy, which have driven rates lower throughout 2001" that were the reason for the cut.