The selling pressure engulfing global stock markets intensified yesterday with the FTSE 100, London's benchmark index, sliding to its lowest level this year and spiralling below the 5,000 mark in the process.
At its worst, during the late afternoon and as Wall Street's Dow Jones Industrial Average posted a 200-point loss, the index fell below the 4,900 level, although it rallied modestly to close the session 156.2 or 3.1 per cent off at 4,908.2. That fall was the Footsie's eighth-largest points fall in a single session.
Harassed dealers had more bad news at the end of the day in the form of big job losses at one of the big global investment banks, ING. They said sentiment in the stock market, already severely damaged by the relentless pressures on Asian, Russian and Latin American markets for much of the year, had taken a further hammering from the near-collapse of Long-Term Capital Management (LTCM) and the possibility that other hedge funds could find themselves in similar trouble. And comments to the US House Banking Committee from Mr Alan Greenspan, the revered chairman of the US Federal Reserve, that LTCM's problems could have triggered a "seizing-up of the market", caused renewed nervousness around the City's dealing rooms.
"The market is alive with rumours of more problems involving hedge funds," said one trader. "You only have to look at the performance of bank shares over the past few days to know that there is a real worry of big losses," he noted.
"There is no doubt at all that there has been a switch out of equities and into gilts and all the talk is that it will continue in the short term," he said. He also said that the Fed's move to cut US interest rates by 25 basis points had done little to stem the tide of selling in London and New York.
The relentless selling of the bank stocks unnerved the rest of the market. Rumours of more bad news to come from UBS and a warning from Dresdner Bank were viewed with alarm and as a result the British banks, the biggest individual sector in the FTSE 100, were heavily sold all day.
London was on the back foot from the outset, with Wall Street's overnight slide in which the Dow fell 237 points amid continued worries about earnings and global market problems followed by a 3 per cent decline in Tokyo as that market reacted badly to a depressed survey of Japanese business confidence.
And with the other big European stock markets, Frankfurt and Paris, kicking off under intense pressure, there was only one way for London to go.
The weakness extended right across the market, with the FTSE 250 index retreating 103.0 or 2.3 per cent to 4,441.2, its lowest closing level this year. The FTSE SmallCap dropped 33.8 or 1.7 per cent to a year's low of 1,952.8. Turnover was 968 million shares.
Among the points of interest for individual stocks, Tottenham Hotspur confirmed George Graham was to be its new manager. Spurs dropped 2p to 78 3/4p while Leeds Sporting, which owns Graham's former club Leeds United, was unchanged at 17 3/4p. Troubled clothing and furniture retailer Laura Ashley lost 3p to 17p as it revealed more heavy losses.
BT is to buy nearly a quarter of South Korean mobile phone company LG Telecom. However, the company joined the market's journey downwards, losing 15p to 778p.
The excitement over today's launch of Sky Digital, the first digital TV service in Britain for which receivers are available in the shops, failed to put the ratings up for owner BSkyB's shares. The satellite broadcaster fell back 8p to 493p.
British Airways' budget airline Go said it would nearly treble the size of its fleet to support planned growth over the next 15 months. But BA was not immune to the stock market turbulence and stalled 25p to 335p.
