THERE were no prizes yesterday for guessing which way London and the rest of Europe's stock markets would go in the wake of Wall Street's 4.3 per cent reversal on Thursday and Monday. On those two days, the Dow Jones Industrial Average lost 140 and 157 points respectively.
London managed its retreat in classic fashion with market-makers adopting their usual defensive stances, hitting quotations at the start of the day to head off any big sellers and then nudging prices higher to encourage a rally.
In the event, they were successful and all the main indices closed well above the day's lowest levels.
The FTSE 100 index finished the day 64.8 lower at 4,248.1, fighting off a determined attack on the 4,200 level during the first frantic minutes of the session. At its worst, the FTSE was down 112.4 at 4,200.5. The FTSE Mid-250 closed 78.8 weaker at 4,497.4 while the SmallCap settled 33.4 off at 2,280.3.
Wall Street's sell-off took place gas international investors fretted about the possibility that last week's 25 basis points rise in US interest rates might be the first in a series of shifts to hit US corporate profits.
Senior market-makers said the big investing institutions had not begun a large-scale selling programme and were put off by the big mark-down.
"We were concerned by the pressure exerted on the future during the early part of the day, but once that lifted, sentiment began to improve," said one leading trader. The future settled at a small discount to the cash market, encouraging a flurry of bear closing just before London closed.
The day's economic news led to activity in both directions. The UK Purchasing Managers' Index for March came in below consensus and did no damage to a gilts market suffering from the weakness of the US bond market during the Easter holiday.
US news was mixed. The NAPM figure was stronger than expected, although the prices-paid element was well received, as was US construction spending and the leading indicators.
The overall impression was that London and the rest of Europe "had ridden out the storm that started in New York, and that European markets were likely to stabilise in the short term.
However, the head of global trading at one of the biggest European investment banks said that while London had shaken off the worst of the US-inspired weakness, there were plenty more hurdles to face in the short term. These included the general election and the expected rise in British interest rates which many observers see as inevitable whoever wins the election.
There was very little joy for the market's big trading houses, which are believed to have absorbed further losses on their trading books during the most recent bout of turbulence in the market.
Turnover was disappointing. At 6 p.m., 650.8 million shares's had changed hands.
