Any hopes that London would replicate Wall Street's relatively solid performance on Thursday were dashed by a fresh batch of bad news from US tech stocks, released after US markets closed.
And as if that wasn't bad enough, the twin expiries of the March Footsie future and index options in mid-morning brought with them a fresh torrent of downside pressure on the cash market, leaving all the main indices sharply lower for the fifth session out of the past six.
Dealers claimed that the disruption to the derivatives market for half the trading session might have prevented further selling because trades in the cash market could not be hedged via the Footsie future.
"Thursday's rally was never that convincing as more than half the FTSE 100's closing gain came in the post-market auction and it was always likely that it offered an opportunity for investors to get out; and that's what they have been doing," said one marketmaker.
At the finish the FTSE 100 was down 166.4, or 2.9 per cent, at 5,562.8, its lowest level since mid-December 1998, while the FTSE 250 dropped 46.0 to 6,258.3 and the SmallCap 7.1 to 2,994.9. But by far the worst fall in the indices, in percentage terms, came in the Techmark 100, which lost 103.3, or 4.7 per cent, to a record low of 2,068.93. Over the week the 100 index fell 6 per cent, the 250 and SmallCap 2.8 per cent apiece and the Techmark 100 10.4 per cent.
Analysts said the deterioration in earnings in the US was now infecting Europe and more warnings were on the horizon. Markets on both sides of the Atlantic are bracing themselves for what promises to be a crucial week, with the US Federal Reserve's open market committee (FOMC) meeting in Washington on Tuesday to determine US interest rate policy.
Markets are pinning their hopes on the FOMC chopping a further 50 basis points off US rates to try to head off any further deterioration in a slowing US economy. Even then, many in the market believe that 50 basis points might not be enough to placate the markets.
In an unusually short winners table it was Marks & Spencer, whose shares plunged from about 650p in late 1997 to a low of 170p last autumn, that topped the table after Deutsche Bank added the stock to its European Focus list. Turnover in equities was 2.2 billion shares.
