London market in volatile mood

The London market was in volatile mood today as investors came to terms with four sessions of carnage in the City.

The FTSE 100 Index sank as low as 5618.7 in the first half hour of trading - down 56.8 points – before bouncing back just 30 minutes later to stand 38.4 points higher at 5713.9.

The turbulence followed a four-day bloodbath which has seen the Footsie wipe out all its 2006 gains as investors in London and New York fret over the possibility of higher inflation and interest rates.

Markets across Europe have been hit in recent days by the inflationary fears, with the Dow Jones Industrial Average down a further 214 points last night.

In London, the Footsie dropped 170.7 points with its biggest percentage slump for more than three years.

Hilary Cook, of Barclays Stockbrokers, said: “There are concerns about inflation, but were the concerns worth a 170-points sell-off? Probably not, but everyone was selling and there was little or no buying.

“There is a lot of global uncertainty on where interest rates are going and where commodity prices are going, which makes it a difficult market to predict.

“But after the falls we have seen we would expect some consolidation, although it is going to be a bumpy ride.”

Many analysts see the recent slump in London as a correction after a strong bull run in which the Footsie rose from 3282 at the start of the Iraq war in March 2003 to a high of 6132 last month.

Mike Lenhoff, chief strategist at Brewin Dolphin Securities, said: “Equity markets have performed astonishingly well and the kind of progress they have made is unsustainable without a decent correction or period of consolidation.”

The correction has seen 7.5% or more than £117bn (€173bn) wiped off the value of London's blue-chip stocks since the year-high on April 21 and £95bn (€140bn) since Friday morning.

Mr Lenhoff said: “In our view, a 7.5% fall constitutes a decent correction and it now leaves the UK large caps in a technically oversold condition.

“On that basis alone we would expect to see a period of stability at the very least and possibly a rebound.”

The City was hit by an extra bout of nerves yesterday afternoon after a trading systems slowdown.

Market volumes were so high towards the end of the day that the London Stock Exchange limited the speed at which price information was released.

The LSE said it was standard procedure when volumes are high to prevent customers’ systems from overloading but it may have slowed brokers’ access to prices.

Elsewhere, Fidessa – one of the UK’s largest systems which handles about 40% of trading in London – was hit by a fire at a centre just outside London and had to switch to back-up operations.

The company said this had no impact on trading for its clients.