Investors brave unpredictable FTSE

Investors endured another rollercoaster session today after the FTSE 100 Index came within 40 points of falling below the 6,000 barrier.

The Footsie dived 100 points at one stage, but recovered its poise after Wall Street’s opening to end the session 34.2 points lower at 6109.3.

London’s benchmark index has not fallen below 6,000 during a trading session since March this year. It last closed below 6,000 in October 2006.

More than £73 billion has been wiped off the value of the Footsie in the past week, reflecting uncertainty about the exposure of financial institutions to the collapse in the sub-prime mortgage market.

In addition, confidence in the United States suffered on Tuesday after retail giants Wal-Mart and Home Depot gave disappointing profit forecasts.

The US index closed 1.5% lower on Tuesday night, leading to a major sell-off in Asian markets and a weak start for European shares today. The Footsie dipped as low as 6041.7 at lunchtime, but pulled back amid relief that no further shocks had emerged out of the United States during early trading.

CMC Markets analyst James Hughes said: “If the Footsie does break 6,000, I would not be surprised to see a sustained period below that level.”

Some estimates suggest 300 billion dollars (£150bn) of loans could be at risk because of the sub-prime crisis, but at the moment investors do not know the exact scale of the problem.

European banks BNP Paribas, Deutsche Postbank and Germany’s IKB have taken major hits from their investments in US real estate securities.

The resulting credit crunch, as banks increased the cost of lending, forced central banks to pump more money into banking systems to help soothe investor fears over a drying up of credit markets.

Richard Hunter, head of equities at Hargreaves Lansdown stockbrokers, said: “Market volatility is going to continue until the extent of the problem is properly known. It may take a few weeks for positions to unwind and for banks to hold their hands up and reveal how much they are exposed to.”

The FTSE 100 Index received some encouragement yesterday after a sharp fall in inflation lowered the chances of an imminent hike in interest rates.