Shares in London continued their relentless drift downwards yesterday, with the FTSE 100 index having now dropped more than 800 points since the start of the year.
The old economy/new economy split continued to govern individual share price movements, with technology stocks once again the strongest gainers and utilities facing a further sell-off.
There were further signs of juggling within institutional portfolios, as fund managers prepared themselves for the vastly increased weighting of Vodafone Airtouch within the British market, once the Mannesmann acquisition goes through.
After recent rate rises in the US and Europe, investors are clearly nervous that Britain is about to follow suit. The Bank of England's monetary policy committee will announce its latest interest rate decision at noon on Thursday. Most economists are expecting an increase of a quarter of a percentage point.
The FTSE 100 index began the day in a decent mood, moving up 42.1 to 6,232.1 in early trading. But that turned out to be its best level of the day and the blue chips soon drifted into negative territory.
At its worst, when Wall Street was looking shaky in mid-afternoon, Footsie was 84.3 points off at 6,100.7. But 6,100 seemed to offer a measure of support and the index closed down 66.4 at 6,118.4. The FTSE 250 and SmallCap indices were also lower on the day but the losses were more subdued.
Indeed, the FTSE 250, which fell 24.4 to 6,123.6, had the rare privilege of ending higher than the FTSE 100. The SmallCap slipped 11.2 to 3,153.0.
British market strategists at HSBC say the London market has underperformed the rest of the world this year. Rising bond yields have hit banks and there has been a short-term effect as investors arbitrage between Vodafone and Mannesmann. The big market jump at the end of 1999 may have used up some of the gains that were expected in the first half of this year.
However the bank says the fundamentals of the British market are still good. Base rates will peak at 6.5 per cent, inflation will stay low and earnings growth is coming through. The bank forecasts a year-end figure of 6,900 for Footsie.
Dresdner Kleinwort Benson, one of the most bullish analysts at the end of 1999, has predicted a 7,800 finish for Footsie this year. Dresdner is predicting a year of two halves. There needs to be some settling down on the interest rate front before the earnings growth can pull the market higher in the second half, says the bank.
