The interest rate "feelgood" factor that has stimulated London's stock market in recent sessions all but disappeared yesterday amid growing fears of global recessionary pressures.
A steep decline on Wall Street overnight, early weakness yesterday and growing concerns about Brazil also chipped in to drive London and other European markets sharply lower.
Dealers said the market's reversal had not come out of the blue; rather, as one put it, all the good news had already been priced into stocks ahead of the domestic interest rate news.
He said there had also been a large and early element of end-year priming of the stock market, because of the expected sharp contraction in turnover levels in the run-up to the launch of the euro on January 1st.
One of the traditional strengths of the London market has been the substantial liquidity available in the front-line and most of the second-line stocks.
While the imminence of the euro's launch was a constant worry, Wall Street was the real threat to confidence. The Dow Jones Industrial Average plunged 167 points overnight, hit by fears of impeachment moves against President Clinton and earnings downgrades. Wall Street came in weak again early yesterday, posting a decline of nearly 50 points shortly after London closed.
The FTSE 100, pressured from the outset, was finally 118.6 lower at 5,541.7.
That decline left the index a net 40.2 lower over a week that had brought the expected cut in interest rates, albeit not by as much as the super-optimists had been hoping for, and the much-heralded merger move for Zeneca, which announced a link with Sweden's Astra.
Second-line stocks were also buffeted. The FTSE 250 closed 43.1 off at 4,736.9, leaving it down 13.8 over the week.
Cadbury Schweppes was easily the best performer among a small band of FTSE 100 winners, as the shares raced up in the wake of the sale of its non-US soft drink brands to Coca-Cola. Turnover in equities was 933.3 million shares.
