Sentiment in London's equity market, already fragile, deteriorated further yesterday. The leaders came under renewed heavy fire, along with most European stocks, amid growing concerns about the next move in US interest rates.

The FTSE 100 posted its fourth straight decline, dipping below the 5,700 level in the process, before rallying to finish a difficult trading session a net 141.5, or 2.4 per cent down at 5,795.7. Yesterday's retreat extends the fall over four sessions to almost 160 points or 3.9 per cent.

Since hitting its all-time intraday high of 6,150.5 on April 14th, the index has retreated 428.1, or 7 per cent.

"There is an increasing worry that the Fed might lift rates next month. That, and the long-term fears that Wall Street, and therefore many of the European stock markets, are heavily overbought are behind the market's nerves," said a salesman at one of the City's leading securities houses.

"We've come back more than 400 points from the high and there are many who feel a further fall of 200 points wouldn't be unhealthy," he added.

But he insisted there was no reason for investors to panic yet. "There is not a great deal of stock coming out; possibly the leaders are seeing some selling pressure, but that is certainly not the case across the rest of the market."

Marketmakers agreed that the London market's problems came more from overseas than from home. The general view around a number of the trading desks was that the market could easily cope with the recent bout of weakness, although that could well change if the selling pressure builds up over the rest of the week.

On the technical front, the Footsie's dip below 5,800 was seen as a substantial bearish signal with the next stop, put around the 5,600 level.

Stock market strategists viewed the market's performance with increasing unease. Mr Richard Jeffrey, group economist at Charterhouse Tilney, said there was now real anxiety about economic prospects.

"In the US the yield on the long bond has moved back above 6 per cent and London may now be adapting to the fact that prospective profits growth does not support the high ratings the market is selling on," he said.

The market's second-liners and the small caps managed to resist most of the downside pressures throughout the early part of the session, but succumbed later in the day as Wall Street confirmed the worst expectations and came under sustained pressure.

The FTSE 250, which hit new closing and intra-day records only last Thursday, finished the day a net 36.3 off at 5,564.0, while the FTSE SmallCap, which edged higher in the first hour, ran back sharply in the afternoon, eventually closing 14.9 off on balance at 2,626.6.

London's problems began late on Friday when the Dow Jones Industrial Average closed the session down 78 points, followed early yesterday by sweeping losses across Asian markets.

Turnover in equities jumped to 1.41 billion shares, the highest daily total for some months.