London's equity market delivered another gloomy performance yesterday, burdened by initial concerns about Wall Street, another bout of weakness in some of the banks and worries that the bubble in many of the high-tech and Internet-related stocks may be about to burst.
Traders also said there had been general selling across the blue chips to fund the re-weighting of Vodafone AirTouch which now accounts for 13 per cent-plus of the FTSE 100. Although much of the reweighting has been under way for some time, via the derivatives market, there remains plenty of work for fund managers to do.
Sentiment was not helped by the poor finish of Wall Street on Friday, with the Dow Jones Industrial Average finishing down 218 points and the Nasdaq Composite 89 points off. And US nerves will be tested later this week when Alan Greenspan, chairman of the Federal Reserve, testifies to Congress on Thursday.
But the Dow quickly rebounded yesterday, chalking up a 100 points-plus gain just after London closed, while the Nasdaq looked to have overcome an earlier twitchy start.
It was noticeable that much of the weakness in the FTSE 100 stemmed from poor performances from many of the market's heavyweights, which are very much the favourites of US investors.
These included Shell, Vodafone AirTouch, now including Mannesmann, and Glaxo Wellcome and SmithKline Beecham. BP Amoco rallied after a poor initial performance.
At the close, the FTSE 100 index was down 124.7, or 2 per cent, at 6,068.6, its lowest closing level since October 27th and a 12.4 per cent decline since the turn of the year. Some dealers said there was now a strong possibility that the index would test 6,000 in the short term. "The market expects that more rate rises are on the way and that is the problem," said one marketmaker.
The strategy team at Salomon Smith Barney, which has forecast British rates at 7 per cent by end-2000, remains supportive of the FTSE 100, and retains its 7,200 target.
But while the 100 index was always deeply in negative territory, the second and third ranking stocks did much better, with the FTSE 250 and SmallCap indices both managing modest gains for much of the session. The FTSE 250 only cracked on the downside in the last hour of trading, settling 1.8 lower at 6,145.6, unsettled by damaging falls in Enterprise Oil, Thomson Travel and Lasmo.
The SmallCap index, meanwhile, was given a big boost by the surprise bid for Courtaulds Textiles, from Sara Lee of the US, and closed 9.3 higher at 3,169.6, having been up 14.4 at best.
Turnover in equities was 2.5 billion shares, well below Friday's record 4.4 billion.
