US hijacking rumours put paid to FTSE's two-day rally

The two-day rally in London's equity market was brought to a halt yesterday, and with a substantial bump too. The market reacted to vague rumours of another hijacking in the US, some switching out of equities and into gilts and a fear that the weekend might see the first US retaliation to last week's terrorist attacks.

Adding to the pressures on the market was a bearish strategy update from Deutsche Bank forecast further earnings downgrades and predicting that "equity markets have probably got to fall further". While there remained a general feeling that the two-day market rally had been driven more by emotion after the dreadful events of last Tuesday, which saw the destruction of the World Trade Centre in New York and the attack on the Pentagon in Washington, there was also a view that reality had returned ahead of the expected reopening of Wall Street on Monday.

There was plenty of talk, too, that the near future possibly as early as Monday will bring a US-led round of interest rate cuts designed to stimulate the US economy. The economics team at ING Barings said: "With Tuesday's events likely to hit consumer confidence further in the coming weeks, the pressure on the Fed to act swiftly is building.

"Fortunately, the Fed has shown a healthy appetite for decisive action in the past. The October Fed Funds futures contract has already moved a long way towards pricing in 75 basis points of cuts." With the downside pressure on the FTSE 100 building from midday onwards, the winners list in the top 100 grew shorter and shorter and was left with only four stocks by the close.

Food retailers, classic defensive stocks, provided the top three winners in Tesco, Safeway and Sainsbury. Smiths Group, the aerospace/defence company, was the fourth, reflecting hopes of a big increase in US and other defence spending following the attacks in the US. On the other hand, the prospect of a sharp fall in the number of transatlantic passengers triggered another sell-off in British Airways shares, which had already fallen sharply before the terrorist attacks. For much of the session British Airways' market capitalisation was eclipsed by that of Ryanair, the Dublin-registered no-frills airline, only to overtake the Irish company in the last minutes of the session.