Worrying US economic data drags London down

Some worryingly weak economic data from the US put paid to any chances of a strong start to Wall Street and dragged London's equity market sharply lower at the finish of an erratic first trading session of the year.

The afternoon reversal came in the wake of news that the US National Association of Purchasing Management index of manufacturing in the US in December had fallen sharply to 43.7, its lowest level since April 1991, compared with a November figure of 47.7.

The December figure compared with a consensus forecast of about 47 and fuelled further market concerns that the US economy was slowing much more quickly than previously thought, with ominous implications for US corporate profits.

The Dow Jones Industrial Average, which dipped 81 points last Friday evening, posed a three-figure decline shortly before London closed and the Nasdaq Composite suffered even more, following up its 87-point retreat on Friday with a further 150-point plunge at the same time.

Before the US-induced sell-off, London had performed creditably, recouping all of an initial 52.7 point decline and then pushing ahead to record a 53.7 gain by lunchtime.

The FTSE 100, London's benchmark index, fell heavily during the last hour of trading, eventually settling a net 47.8 lower at 6,174.7.

It was the same for the FTSE 250 and SmallCap, both of which ended the session under growing downside pressure having rallied well around midday from initial weakness. The 250 closed 16.4 off at 6,531.1 after a session low of 6,527.0, while the SmallCap eased 3.3 at 3,180.0.

London stocks struggled during the early part of the trading session as investors refused to chase stocks in the wake of a bearish weekend press, which concentrated on the poor outlook for the US economy and the implications for the UK and Europe. But sentiment gradually improved as the day wore on, until the bad news about the US purchasing index began to drive stock prices lower.

The day's domestic economic news, MO money supply and the CIPS survey of manufacturing in December caused no real problems for the market, especially the latter, which came in unchanged on November's 51.3.

Turnover was surprisingly robust, reaching 1.26 billion shares, although that figure was boosted by the 281 million shares traded in Vodafone.