London shares fell for the third consecutive session and for the fifth out of the past six trading days as the stock market continued to register its unease over the direction of British interest rates and sterling.
Adding to London's discomfort was a bout of worryingly severe weakness across many of the Asian markets, where Tokyo fell 2.5 per cent, Hong Kong 1.6 per cent, Seoul 3 per cent and Thailand 2.2 per cent, and a sharp decline in the Dow Jones Industrial Average as Wall Street began trading.
But the real downside pressure in the leaders came from a big sell-off in the bank sector which was hammered by sellers after a bearish report on Lloyds TSB in Wednesday's Financial Times and also by a profits downgrade instigated by influential brokers.
A study by the British Chambers of Commerce saying that sterling's strength is now affecting the manufacturing and services sectors also worried the market.
Dealers staffing London's trading desks were alarmed to see the FTSE-100 index post a three-figure fall and lose the hard-won 6,000 level for much of the afternoon before rallying just before the close to finish 72.1 down at 6,002.0.
The index was always under pressure, with Wall Street's dismal opening triggering a welter of selling pressure in mid-afternoon, which saw the index slide more than 109 points at its worst in mid-afternoon.
Senior traders were by no means reassured by London's late rally, however, pointing out that what began a couple of days ago as small pockets of profit-taking had started to develop into genuine selling by those institutions that have been running full weightings in Britain for some time.
"It's common knowledge that the big four UK fund management groups have been underweight for some time, but there are plenty that have been running with the tide and they have been selling into the most recent surge," said one market maker.
Others insisted that the heavy falls across the market owed more to a general markdown. "The buyers have pulled out of the market and the feeling is that they won't reappear until we get a clearer picture of the outlook for interest rates," another dealer said.
Volume figures tended to back up that case with turnover reaching only 763.8 million shares at the 6 p.m. cut-off, well below recent levels.
The other FTSE indices were similarly hit, with the FTSE Mid-250, which held up well during the morning and early afternoon, finally succumbing to the flurries of selling pressure and finishing the day 9.2 off at 5,536.8.
The FTSE SmallCap, which was never really under pressure during the morning period, looked increasingly vulnerable during the afternoon and settled at a session low of 2,630.3, down 6.2.
Bank stocks supplied eight of Footsie's worst nine performers with Lloyds TSB attracting big selling from the institutions as the press pinpointed the exceptional performance of the shares this year, which has seen the stock price climb about 17 per cent.
Lloyds alone accounted for more than 20 FTSE points on the downside and was accompanied by HSBC, Schroders and Standard Chartered among the poor performers. Schroders, a recent hot merger tip, fell 98p to £29.00 following massive gains earlier in the week.
Barclays fell 20p to £18.04, NatWest slipped 30p lower at £11.73, Woolwich ended 8.5p off at 363p and Halifax fell 17p to 871p.
Asian-linked HSBC, rumoured to be in talks with a number of interested parties, took a beating and dropped 91p to £19.00. Standard Chartered also lost its way, slimming 35p to £10.04. Abbey National just managed to buck the overall trend as it firmed 2p to £12.03.
Pharmaceuticals saw further profit-taking, with Glaxo Wellcome falling 49p to £16.37, Zeneca down 77p to £25.75 and SmithKline Beecham 24p out of favour at 725p.
