Shares retreat in absence of buyers

London's equity market had to endure another painful trading session yesterday, with genuine investor activity continuing at dismally thin levels and share prices on the retreat throughout the day. There did not appear to be any serious threats to the stock market in mid-session, apart from a rally in sterling, which re-ignited worries about the damage to British corporate profitability.

Dealers said the day's economic news, which included the August sales monitoring report from the British Retailing Consortium and inflation news for the same month, were not seen as damaging to sentiment or as increasing the chances of a rise in British interest rates in the short term.

But a buyers' strike left the market almost totally bereft of support during the morning, when sell-side pressures began to build up in the derivatives market.

By the finish of a slow session, the FTSE 100 index settled 34.7 lower at 4,950.5, well above its low for the day but a reflection of a growing realisation that the index runs into selling pressure at or around the 5,000 level.

The rest of the market was not so badly hit. The FTSE Mid-250 index ended the day 9.1 lower at 4,677.0, having been 14.8 off at its worst. And sentiment in the smaller stocks was completely unaffected, with the FTSE SmallCap index posting a 1.3 gain at 2,279.6.

One explanation being put forward by traders as behind the contraction in volume was the October 20th shift from quote-driven to order-driven trading.

Some brokers said market-makers, knowing their tried and tested methods of trading shares will be abolished next month, are increasingly unwilling to adopt aggressive trading stances. The increase in volatility is one consequence, as dealers avoid big deals which then impact more heavily.

Some dealers were wary of Wall Street's unconvincing performance on Monday, when the Dow Jones Industrial Average saw an early 50-point advance reduced to a closing 12-point gain. Yesterday, the Dow lost ground in early trading, but embarked on a strong run as the session unfolded.

US favourites Reuters and British Airways were among the best performers in the FTSE 100 index, and Standard Chartered, badly affected by the recent sell-off in Far Eastern markets, also rallied. But the quality end of the retailing sector suffered in the wake of evidence of a slowing of high street sales.