Nerves in London's stock market were being tested again yesterday as Monday's strong performance by Wall Street was offset by another slide in shares on the Hong Kong market. The 4 per cent fall in Hong Kong came in relative isolation - many other far eastern stock markets such as Bangkok, Seoul and Manila closed up on the day - but it sent shivers across European markets.

They had been expected to come in stronger after the 3 per cent rise in the Dow Jones Industrial Average on Monday.

And with Wall Street succumbing to a bout of profit-taking in early trading yesterday after its near 300-point rise over the past two sessions, London's FTSE 100 index finished the day with a moderate loss of 9.0 at 4,897.4.

The losses in the leaders did not carry over into the rest of the market, however. The second-liners never really looked uncomfortable, and the FTSE 250 settled not too far from its session high of 4,678.5, ending the day 11.2 up at 4,674.8.

Similarly, the FTSE SmallCap made modest progress to close 1.5 ahead at 2,321.7.

Dealers, frustrated by the intensity of moves in recent sessions but equally by the lack of volume, complained bitterly.

"It's either feast or famine. We've not got to grips with the new order-driven system. The big institutions are simply not putting up enough commercial bids and offers and the spreads are too wide," said one trader.

"Volume is suffering and what makes it more difficult to take is that the institutions are asking the old market-makers to make them prices in large sizes which, if it persists, will undermine the new system."

Others pointed out, however, that the new system had coped well with the turmoil since Big Bang Mark II. One former market-maker said his firm would probably have lost around £5 million sterling last week committing capital to back its market-makers and that as a whole the marketmaking system would probably have lost getting on for £40 million.

The feeling was that markets had still to contend with problems in the Far East and would also have to deal with the worry that rates in the US and Britain could rise in the near future.

"The market's confidence has been eroded and it is not over yet by any means," said the head trader at one big European securities house.