Domestic and international factors combined to erode the recent gains in London's stock market yesterday.

A sharp dose of profit-taking on Wall Street, where the Dow Jones Industrial Average tumbled well over 100 points not long after trading commenced, plus another spate of profit warnings from a handful of midcap and smallcap companies, gnawed away at the market's confidence.

A round of worryingly large falls across Asian markets, where Hong Kong dropped over 3 per cent and Tokyo in excess of 1 per cent, had earlier set the UK market on its downside path.

And doubts began to creep into the market about the potential for another reduction in UK interest rates after the next meeting of the Bank of England's monetary policy committee, scheduled for December 10th.

The end result was a closing fall of 100.3 in the FTSE 100 index which settled at 5,743.9, easily the day's lowest level.

"The institutions are slowly coming round to the idea that the London market has already seen most of the pre-Christmas surge and the weekend press highlighted the deteriorating outlook for corporate earnings, perhaps we're now looking at a period of sidetracking," said one marketmaker. The FTSE 250 index closed a net 24.3 off at 4,901.7.

Turnover in the equity market, normally depressed on a Monday, was a healthy 936.2 million shares, with non-FTSE 100 stocks accounting for 55 per cent of the overall figure.

The banking sector was the scene of much market activity with Baclays Bank shares initially racing ahead as the weekend press speculated on the prospect of the bank being vulnerable to either bid or merger approaches after last Friday's shock resignation of chief executive Mr Martin Taylor.