Stocks fall out of Thursday's frying pan, into Friday's fire

If investors thought that Thursday had been bad, yesterday turned out to be even worse. Shares went into free fall in the face of more bad news on the US economy.

Until earlier this week, it had looked as if 5,300 might be a floor for the FTSE 100. But the floor gave way on Thursday and yesterday the blue chips fell into the basement, dropping first below 5,200 and then 5,100.

Thursday's 192-point fall in the Dow Jones Industrial average ensured trading would get off to a difficult start. But the big hit to the market came in the wake of the US non-farm payroll figures, which showed a larger-than-expected 113,000 decline and a jump in the unemployment rate to 4.9 per cent. Trading screens in London immediately went bright red.

Wall Street reacted badly to the news, as expected, and the Dow was down 200 points just after the London close. That pushed Footsie to a closing level of 5,070.3, down 134 and just above the day's low of 5,068.1.

The sell-off spread right across the market with the FTSE 250 down 85.4 at 5,860.7, the SmallCap 32.4 lower at 2,593.7 and the Techmark 100 off 24.63 at another all-time low of 1,366.31.

Over the week, the FTSE 100 was down 5.2 per cent, the 250 4.2 per cent, the SmallCap 4 per cent and the Techmark 100 5.7 per cent. The latest sell-off in equity markets has been triggered by fears that the global economy, instead of recovering later in the year, may be heading for a new period of weakness.

Investors are also nervous about the prospects for the corporate sector, particularly given the debt problems of telecom groups.

The weakness spread to the financial stocks yesterday, which made up nine of the worst 20 FTSE 100 performers.

"Thursday's market action was highly significant, and not bullish," said Ian Williams, UK strategist at Granville Baird.

"The UK indices broke down through previously significant support levels (notably 5,260 on the FTSE 100 and 2,550 on the All-Share). The earnings downgrades that began in technology have spread to a wider range of companies and industries and show no sign of relenting, so despite previous price weakness, valuations generally still look stretched." Turnover passed the two billion mark for the fourth successive session.