A volatile session saw further evidence that the FTSE 100 index is finding it difficult to break out of its recent 5,000-5,200 trading range.
During the morning, there were rumours that Osama bin Laden had been killed or captured. That helped the bullish mood and took the FTSE 100 to its high for the day of 5,265.5, up 72.2.
But the rumours were groundless, and shortly afterwards investors' minds were re-directed to the gloomy state of the UK economy. The Confederation of British Industry survey made pretty depressing reading.
The business optimism balance fell to -54 in October from -22 in July, while export optimism fell to -53 from -25; the export figures were the weakest since July 1980.
Oil stocks weighed on the market after the crude price slipped. Media stocks also lost some of the ground gained on Tuesday. But technology stocks were generally stronger, with Logica and Sage among Footsie's five best performers.
Merrill Lynch's latest survey of institutional share ownership showed that UK investors have the largest overweight positions in construction, gas, real estate, support services and leisure; underweights include oils, banks, food producers, telecoms and pharmaceuticals.
The UK market continues to be supported by hopes of recovery in 2002 and the prospects of further interest rate cuts. But those are offset by fears of terrorism and the potential widening of the Afghanistan conflict, plus continuous bad news from the corporate sector. The combination has kept Footsie in a narrow trading range during October.
"We continue to see equities as cheap relative to bond yields, and while not as cheap as three weeks ago, we view the sell-off post-September 11 as the catalyst for a change of market direction," said the equity strategy team at Commerzbank. "Our ready reckoner of FTSE fair values gives a 12-month price target of 7,350, based on bottom-up earnings estimates or 6,600 on top down estimates."
Turnover was once again pretty healthy, with 2.56 billion shares traded by the 6 p.m. count. Vodafone, Marconi and BT were most active.
