Investors nervous as FTSE slides below 4,000

London's FTSE 100 Index slid back below the 4,000 mark today as nervous investors took advantage of recent rallies to head for the exit.

Since hitting six-year lows in early March, stock markets have moved cautiously higher and were buoyed last week by better-than-feared results from US banks.

However, the run of gains came to an end today as the index fell 2.5% to 3990.9. Wall Street's Dow Jones Industrial Average booked a similar decline in early trading.

CMC Markets' senior dealer Giles Lee said: "Equity markets have started the week on a rather sour note with traders rushing to book profits."

London's leading shares were in the red for most of the day despite higher-than-expected profits from the Bank of America (BoA) and signs of reviving takeover activity in the US.

But the BoA's profits surprise was offset by a $13.4bn (€10.36bn) bad debt provision which sparked a sell-off of several major financial stocks.

In London, Barclays was the worst hit bank as shares fell 8%. HSBC and Lloyds Banking Group also saw losses, although Royal Bank of Scotland finished in positive territory.

With little UK corporate news to drive stocks, traders were cautious ahead of Wednesday's Budget, which is set to reveal the horrendous state of the public finances.

The focus was also on a busy week for results in the US, when the impact of the recession on a host of big names will be judged.

Among the hundreds of US companies due to report are Coca-Cola, Microsoft, IBM and McDonald's.

Markets remained cautious even after software giant Oracle said it planned to buy Sun Microsystems for $7.4bn (€5.72bn) and PepsiCo bid $6bn (€4.64bn).

David Jones, head of market strategy at IG Index, said: "After the strong bounce back from March's six-year low, markets are ripe for at least some sort of weakness.

"While at the moment the mood of panic seems some way behind us, it would perhaps be overly optimistic of investors to expect another massive uplift for share prices from current levels."