Promising start slides into another down day

A promising start to the trading session gradually degenerated into another down day as lack of support from the institutions, mixed with a poor opening by Wall Street, left the FTSE 100 index lower overall.

By the close the 100 index was down 64 at 6,413.8, extending the decline over the past two sessions to 113.1, or 1.7 per cent.

That poor performance by the FTSE 100 dragged the FTSE AllShare into negative territory, briefly around midday, but again and more decisively just before the close, when it settled 24.66 off at 3,067.

The FTSE 250 clung on to modest gains until it, too, finally gave way minutes before the close, ending 3.6 easier at 6,569.5.

So it was left to the FTSE SmallCap and Techmark 100 indices to provide much needed comfort to a market still suffering from the general lack of interest that has affected London for the past couple of weeks. The SmallCap climbed 15 to 3,362.5 and the Techmark 100 7.69 to 3,460.41.

Dealers said there were plenty of excuses for the institutions to back off from the market. Most importantly, they said, next week's meeting of the US Federal Reserve's Open Market Committee will be crucial.

The committee is generally expected to leave rates on hold after the recent sequence of market friendly data, but the fear in the markets is that it will flag the possibility of more rate rises if economic news points to any increase of pace in the US economy.

In its latest global economics weekly, Goldman Sachs said: "We expect the Fed to stay on hold but this is discounted, and a surprise hike would cause the market to revise its view that only moderate further tightening will be required over coming months."

Another big factor restraining the institutions is the end of the second quarter next week.

The third factor tending to choke off interest, particularly on the upside, is the July 5th/6th meeting of the Bank of England's Monetary Policy Committee.

"Interest rate expectations have already started to fall but investors are still not convinced we are at the top of the cycle," said Mr David Cumming, head of UK equities at Standard Life, in its global outlook for the third quarter.

Meanwhile, Mr Bob Semple and Mr David McBain at Deutsche Bank have "scaled back our underweight position in UK equities" in their global asset allocation strategy. "Although we have not changed our interest rate forecasts our economists still expect rates to peak at 6.5 per cent, we believe the balance of risks is swinging towards a more benign interest rate environment."