All the gains so spectacularly garnered by the UK equity market since Christmas were virtually wiped out yesterday as London responded to events in New York last Friday and Asia yesterday.
But London did manage a strong recovery, which ran concurrently with the performance of New York. Wall Street kicked off under heavy pressure, and posted another three-figure fall shortly after trading commenced before stabilising and embarking on a strong rally.
At its best as London dealers closed their trading books after a traumatic session, the Dow Jones Industrial Average was up around 30 points.
The startling recovery by Wall Street was attributed to a growing feeling that the US might be poised to relax interest rate policy. "Futures activity in Chicago suggests the next move in short term rates is down, which has to be seen as good news for Wall Street," said a senior salesman at one of the big London securities house.
The FTSE 100 index dropped 150 points at worst, sliding back below the 5,000 mark on numerous occasions to hit 4,988.3, before stabilising and finishing a net 69.5 down at 5,068.8.
The second-line and smaller companies indices came off their worst levels, but not to the same extent as the leaders, suggesting that the sell-off in the stock market was more determined than many thought.
The FTSE 250 index ended 65.0 off at 4,799.6, having hit a low of 4.790.1 in mid-afternoon. The SmallCap index lost 19.0 at 2,329.2; at its worst the index fell 21 points to 2,327.2.
Dealers pointed the finger of blame for the big falls across global market squarely at Asian markets which suffered further alarming losses yesterday.
The worst falls came from Hong Kong where the Hang Seng index plunged around 12 per cent before settling almost 9 per cent lower, still burdened by worries about the problems encompassing Peregrine, the Hong Kong stockbroking firm.
Tokyo market lost 2.2 per cent, Thailand 4.5 per cent and Singapore 8.75 per cent. A 3.5 per cent rally in Seoul and 2 per cent gain in Jakarta did little to calm international investor concerns about the region.
Once again, the Hong Kong sensitive areas of the London market bore the brunt of the market's weakness for much of the trading session, although the two banks closely linked with Hong Kong, Standard Chartered and HSBC staged a remarkable fight back late in the day.
The rallies in those stocks were linked to Wall Street's recovery.
London dealers told clients to sit back and wait for the latest turmoil in Asia to calm down. "As always, the best thing would be to buy the quality stocks on any big falls," was the view put forward by one of the top trader at a UK securities house.
