Shares rode the big dipper in extravagant style on London's stock market yesterday when early losses reaching as much as £75 billion sterling were trimmed back to only £20 billion by the close in response to higher prices on Wall Street. The FTSE 100 index closed only 85.3 points lower at 4,755.4 on the day having fallen as much as 457.9 points, a 9.5 per cent decline, in the morning session threatening a re-run of the October 1987 crash.
The fresh fall yesterday extended the Footsie's setback to just over 200 points, or nearly 5 per cent, so far this week qualifying for the term "correction" rather than "crash". This sanguine outcome seemed a highly unlikely outcome at the start of trading when dealing screens showed lower prices for every single share in the top 100 index and for nearly every one of the top 1,000 shares.
Although losses in London share prices were reduced before Wall Street's opening, heavy institutional buying only made a major impact in London after New York prices began to rally. Shares in the Halifax, the most widely held share in the market, fell 35p to 632p at one stage, nearly 150p off its post-flotation highs this summer. But the powerful rally turned the 35p loss into an 18p gain to 685p on the day, a dramatic recovery for a major stock capitalised at more than £16 billion sterling.
Other financial stocks to rally strongly after large losses included Lloyds TSB, Royal Sun Alliance, Legal & General and Norwich Union. Major "blue chips" to end the day higher were Marks & Spencer, PowerGen and RMC Group.
Even so, the great majority of London shares ended sharply lower with falls of more than 7 per cent suffered by such stocks as Coats Viyella, Lonrho, Barratt and Capital Radio.
Inevitably, market strategists were quick to say the two-day setback signalled the end of the long "bull" market in London. But opinion was divided on whether the market was going through an adjustment or entering a new "bear" phase.
As this week's events have so painfully illustrated, London and other European exchanges are so heavily influenced by Wall Street that the direction of the US market may well be more important than economic and monetary developments in individual countries.
Yesterday's Wall Street and London rallies were underpinned by the strong bond market, partly due to the investor flight to safety but also due to receding fears of markedly higher interest rates to combat a resurgence in inflation. Certainly, so far as the London market is concerned, it will be difficult for a sustained "bear" phase to become entrenched if yields at the long end of the gilt-edged market remain near to lowest levels for 30 years.
