Any hopes that a benign outcome to the Federal Open Market Committee meeting in Washington would invigorate global markets, London included, were demolished yesterday as a sequence of bearish news hit the telecoms sector.
And to make matters worse, Wall Street came in under heavy fire yesterday, with the Dow Jones Industrial Average down 167 and the Nasdaq Composite down 75 just before London closed. Wall Street's malaise was mostly triggered by profit warnings from Unisys, the computer group, and Goodyear Tire.
The FOMC decision to leave US interest rates unchanged came as no real surprise, nor was the hint that the Fed would move quickly to nudge rates higher again to contain any inflationary trends.
And although the Dow and the Nasdaq finished Wednesday's session higher, the Dow's sharp retreat in the final 20 minutes, when a 115point gain was cut to one of only 23 points, made for a nervous start for London. Adding to that nervousness were comments made by Mr David Clementi, deputy governor of the Bank of England and a member of the bank's monetary policy committee, about overvaluations of high-tech stocks.
But the worst pain for the FTSE 100 came from the telecoms sector. Mr Kurt Hellstrom, chief executive of Ericsson, the Swedish telecoms equipment group, said the massive sums of money paid for the third generation of UK mobile phone licences would inevitably impact on costs and margins in the sector.
Marketmakers were generally dismayed with the market's performance, and said a big rotational shift from the telecoms and high-tech stocks mostly into financials caught the eye.
They also said that the end of the second quarter had brought pockets of straight selling of stocks by some fund managers whose portfolios have suffered from the volatility that is now a regular feature of London trading.
"There is a worry that what started as a drip, drip of selling might provoke a cascade," said one trader. Another said he found it difficult to see the market making any progress in the short term, especially with the threat of another rise in US rates in August.
The FTSE 100 closed further 74.5 lower at 6,239.0, having reached a session low of 6,221.0. The 100 index has now fallen 166.2 or 2.6 per cent over the past three sessions.
The other FTSE indices were also under pressure, with the Techmark 100 suffering the worst, down 78.53 at 3,321.57, as telecoms and technology stocks tumbled.
