The UK's FTSE-100 index of leading shares entered "bear market" territory yesterday morning - when an early plunge took it more than 20% below last year's peaks.

The UK's FTSE-100 index of leading shares entered "bear market" territory yesterday morning - when an early plunge took it more than 20% below last year's peaks.

It sank as low as 5358.7 points, following weakness on Monday night on Wall Street and a bad session in Asia yesterday, as fears that large global financial institutions would have to raise even more capital weighed on sentiment in world stock markets.

The FTSE-100's session low yesterday was 20.4% adrift of its close of 6732.4 points on June 15 last year - which was its best finish since September 2000. Yesterday's intra-day low was also 20.4% away from its 6730.7-point finish on October 12 last year.

A fall of more than 20% from the peak constitutes a bear market, and New York's Dow Jones Industrial Average entered this territory last week.

The FTSE-100 tumbled last summer as the global credit crisis developed on the back of massive default on US sub-prime home loans. However, in spite of the Bank of England's emergency bail-out of Newcastle-based mortgage bank Northern Rock, surging interbank lending rates and a fast-deteriorating economic outlook, the FTSE-100 was by October 12 back within two points of its June 15 peak.

Since early November last year, it has fallen sharply. Shares in banks, housebuilders, and retailers have been hammered by the fall-out from the global credit crisis. Housebuilder Persimmon has been among the recent relegations from the FTSE-100.

Banks have had to undertake huge capital-raising exercises to rebuild their balance sheets. Housebuilders have been hit by sharp falls in UK house prices and plunging activity in the residential property market, and the plunge in their shareshas hammered the UK's FTSE-Mid 250 mid-cap index.

Retailers have been hit as consumers tighten their belts amid rising mortgage payments, falling house prices, surging petrol and food costs, and hikes in electricity and gas bills.

The FTSE-100 had by yesterday's close clawed its way out of bear-market territory but it was still down 72.2 points on the day at 5440.5. This left it 19.2% shy of its June 15 and October 12 finishes. The index is down 15% from its close of 6376.5 points on May 19 this year.

Craig Yeaman, investment director at Glasgow-based Saracen Fund Managers, told The Herald yesterday: "It is pretty tough. There is no doubt about that."

Speaking after the FTSE-100 fell to 5358.7 points, he said: "Officially, it is into bear territory. I guess there is no real surprise when you look at all the bad news out there."

However, Yeaman highlighted the relatively indiscriminate nature of the sell-off and declared there were "still a lot of good companies on low ratings".

He added: "It would seem to us that most companies are getting knocked regardless of what news they come out with. The market is taking a broad-based approach at the moment and good companies, as well as those that are struggling, are just being taken down price-wise."

Asked where he saw value, Yeaman noted that the £180m Saracen Growth Fund was not exposed to some of the worst-hit sectors and cited some engineering stocks as being attractive.

He said: "At the moment, we don't have any exposure to banks or housebuilders and only limited exposure to general retail stocks. In terms of where there could be some value, I think some of the engineering com-panies look quite interesting. I think, at the moment, it is probably best to stay away from the consumer stocks. I think some of the engineers are down to quite attractive valuations with some good dividend yield as well."

Jonathan Loynes, chief European economist at Capital Economics, yesterday cited a "clear danger" that the FTSE-100 could fall "well below 5000" based on his consultancy's relatively downbeat 2009 growth forecast.

He said: "Our view (that) the UK stock market was looking increasingly detached from the outlook for the economy has been strongly borne out by the sharp falls of the last few weeks. The FTSE-100 has dropped by around 15% since its recent peak in the middle of May to its lowest level since 2005.

Loynes added: "Of course, these falls have come as part of a general downturn in global markets in response to renewed concerns over the outlook for the US and global economies and a drop in risk appetite. Over the same period, the US S&P index has fallen by around 10% and the German DAX by around 12%.

"Nonetheless, the falls have brought UK equities more closely into line with the latest dreadful news on the UK economy. And if our relatively pessimistic expectations prove to be correct, UK equities could have further to fall. The consensus forecast for GDP (gross domestic product) growth in 2009 is still some way above 1%. We see GDP growth of just 0.5% next year and it could easily be even weaker. On this basis, there is a clear danger that the FTSE falls well below 5000."