Greenspan spooks the market again

London's equity market backed off sharply yesterday as Mr Alan Greenspan, chairman of the US Federal Reserve, again lived up to his reputation for spooking global stock markets.

Delivering the first part of the regular twice-yearly HumphreyHawkins testimony to the US Senate's banking committee - his address to Congress takes place later today - Mr Greenspan sent most global markets tumbling by saying the risk of an inflation pick-up probably outweighed the threat of a sharp slowdown.

And world markets - London included - became increasingly ragged as Mr Greenspan continued, saying the Fed may need to lift rates if the jobs market and demand did not slow.

He also referred to stock market strength, pointing out that the level of stock prices may be hard to sustain.

When the dust had settled on the late flurry of Greenspan-induced activity in British stocks, the FTSE 100 showed a 46.3 decline at 6,132.7, but was well above the session low, 6.115.4, recorded as the Fed chairman's speech was in full flow.

London matched Wall Street's early decline point-for-point, with the Dow Jones Industrial Average dropping 60 points at its worst during London trading hours, before rallying to show a 20-point loss as London closed.

Market-makers insisted that the downturn in Britain was not accompanied by any real weight of selling pressure. "What we got from Mr Greenspan was a reminder, not a threat - it was a gentle jab in the ribs, not the punch on the chin that some had feared," said one dealer.

The second-liners and smallcaps were easier but never under real downside pressure. The FTSE 250 dipped 5.5 to 5,703.7 and the FTSE SmallCap 2.8 to 2,589.2.

Earlier, London, along with most other European markets, was given a preliminary jolt during the morning by remarks by Mr Barton Biggs, Morgan Stanley Dean Witter's highly influential global strategist.

He forecast a "quick and violent" drop in European and US stock markets sparked by the problems encompassing many of the Asian economies.

He said the US market could well fall 20 to 30 per cent in the next six to nine months with European markets following up with falls of roughly 10 per cent.

Around the various sectors, the banks were mostly given a thorough shaking ahead of the results season, which kicks off tomorrow with figures from Northern Rock.

HSBC was the exception, however, the shares recouping all and more of Monday's losses in the wake of the rise in the Hong Kong market.

Turnover yesterday reached 700 million at the 6 p.m. cut-off point, well up on Monday's dismal 580.1 million, but still well below the levels of the past few months. Non-FTSE 100 stocks accounted for 56 per cent of the total.