FTSE 100 stages a fight-back from low

Oct 28 2008 by Iain Laing, The Journal

LONDON’S FTSE 100 Index staged a fight-back from fresh five-year lows yesterday in a rollercoaster session for the UK’s leading shares.

The Footsie plunged to its lowest point since March 2003 in early trading – falling 5% as a sell-off in Asian markets spooked jittery traders.

But a better-than-expected start on Wall Street and a broad hint at more rate cuts next week from the head of the European Central Bank helped the top-flight claw back most of the losses. The Footsie eventually finished 0.8% lower – losing 30.8 points to 3852.5 – after September sales of new homes in the US improved on the 17-year low seen in August.

But last night Wall Street ended another highly volatile session with a big last-minute loss as the market’s stubborn worries about a protracted downturn in the economy and tight credit markets erased the bulk of the financial sector’s gains.

The Dow Jones industrial average fell 203 points, with almost all the decline coming in the last 10 minutes.

Meanwhile ECB president Jean-Claude Trichet told a banking council that an interest rate cut was “possible” next week. US policymakers could also deliver more rate cuts to stave off recession. David Jones, chief market strategist at IG Index, said: “A stronger start on Wall Street boosted afternoon trading in the UK, but the blue-chip index was always looking for a flat finish at best.”

Early sentiment in London was hit by steep overnight declines in Asia, with Japan’s Nikkei index falling 6.4% to hit its lowest close since 1982, while Hong Kong’s Hang Seng closed 13% down to its lowest level in four years and biggest daily decline for 17 years.

Growing concerns about the yen and the effect of the financial crisis on currency markets prompted the world’s seven leading industrial nations to issue a statement on Sunday warning about the “recent excessive volatility” of the Japanese currency which is rising against the US dollar to a 90-yen level and a 13-year high. The dive followed a devastating day for the UK’s biggest firms on Friday, when almost £49bn was wiped off the Footsie after official figures revealed a shrinking UK economy for the first time in 16 years.

Worries have intensified over the resilience of Asian and emerging market economies in recent days, with South Korea’s central bank making its biggest rate cut ever to ward off recession. The Asian concerns also hit HSBC and Standard Chartered due to their exposure to emerging economies. Standard Chartered was the Footsie’s leading faller.