The three-day rally which saw the FTSE 100 index race up 167 points, or 3.3 per cent, continued briefly yesterday, before grinding to halt in mid-morning. Thereafter, pockets of profit-taking and a lack of enthusiasm saw stock prices slip back to finish the session modestly lower.
"The market simply ran out of gas, ironically on a day when all the signals from overseas were positive and when the economic news provided no real inflationary worries," said one dealer.
He insisted, however, that London faced no serious problems in the near future, unless the far eastern markets turned tail again. "On the contrary, there is still a bullish feeling in London, as long as the buy-back and bid stories continue," he said.
However, there was further concern about job losses around the City's trading desks highlighted by reports that Mr Douglas Baker, head of market-making at HSBC James Capel, had resigned yesterday.
Footsie ended an erratic trading day 12.6 points lower at 5,199.8. At its best shortly after the opening bell, the index hit a session peak of 5,247.6, up 44.2.
The FTSE 250, which had looked comfortable for much of the day, finished 0.7 off at 4,756.3. The FTSE SmallCap was more robust and nudged up 1.7 to regain the 2,300 level, finishing at 2,300.5.
Wall Street had finished Tuesday in good heart, albeit well below the session high, as the US Federal Reserve left interest rates on hold. The Dow Jones Industrial Average moved erratically yesterday, after a strong rise in early trading.
The news from the far east was extremely positive after the Japanese government's rescue package was well received in the Tokyo stock market. The Nikkei 225 average fizzed up 3.5 per cent, as did Hong Kong and the Seoul market.
Retailing gloom was exacerbated by profits warnings from Oasis Group, the fashion retailing chain, and Mulberry, the luxury goods manufacturer. Those warnings, plus another from Coats Viyella, the textiles group, provided most of the bad news in the market.
Some of the recent froth that has driven the banks and insurances sharply higher over recent months was blown away in the absence of any hard takeover news. The former building societies, which attracted big interest from the institutions on demutualisation, were given a rough ride.
