Fresh weakness in some Asian markets combined with worrying falls on Wall Street finally brought an end to the six-day run of winning performances by British equities. The weakness in the leaders did not, however, carry over into the second tier and smaller capitalised stocks, which continued to make progress on the back of the recent burst of strength in gilts and the continuing mix of takeover speculation and talk of special dividends and share buy-backs.
That mixture was particularly evident in the utilities stocks which offer investors the additional bonus of perceived defensive qualities in turbulent markets.
The FTSE 100, which had risen 253.5 points, or 5 per cent, during the previous six sessions, ended 40.3 easier at 5,224.1.
The FTSE Mid-250, on the other hand, finished the day up 10.2 at 4,869.1, not far below its session high of 4,870.6, while the FTSE SmallCap added a further 3.1 at 2,338.4.
Sentiment in the leaders was also dented by a stronger-than-expected December survey of the services sector, which was seen by some market observers as increasing the chances of a rise in British interest rates after the meeting of the monetary policy committee.
It met yesterday and meets again this morning, with its decision on interest rates to be made known at midday. Dealers said the market did not expect a rise in British rates but refused to rule out such a move.
London was under pressure from the outset, unnerved by the 72-point fall in the Dow Jones Industrial Average on Tuesday. That slide reflected increasing unease in the US over the situation in Asian markets and its possible impact on corporate earnings for US companies, especially the banks, whose shares have attracted periodic selling pressure in recent weeks.
The marked weakness of the Hong Kong stock market, which fell almost 6 per cent, and the Singapore exchange, down almost 5 per cent, increased the pressure on British stocks, with the FTSE 100 falling to an early low of 5,229.0, down 35.4, not long after the opening.
A mid-morning rally took the FTSE 100 briefly back into positive territory, but it quickly fell back again as further sellers moved in, especially after a near three-figure decline on the Dow just before the London close.
Not surprisingly, the Hong Kong-sensitive stocks bore the brunt of the selling pressure with Standard Chartered and HSBC both posting losses in excess of 4 per cent.
And it was the Asian turmoil, which has led to a decline in demand in the region, that was cited as being behind the steep declines in the FTSE 100's two mining and metal companies. Shares in Rio Tinto and Billiton, both of which are burdened by depressed metal prices, showed hefty losses.
Turnover in equities held up well, eventually reaching 945 million shares by 6 p.m..
