British stocks traded on positive ground for much of the session yesterday but stumbled in the final hours of dealing as US share prices plunged after the opening bell.
British stocks traded on positive ground for much of the session yesterday but stumbled in the final hours of dealing as US share prices plunged after the opening bell, with investors fretting about Washington's $700bn financial sector rescue plan before a House of Representatives vote later today and the health of the world's biggest economy.
The FTSE-100 index closed the session 89.25 points down at 4870.34, reversing two previous days of gains.
Earlier, the UK market had climbed above the important 5000-point level after Marks & Spencer Group reported a lower-than-expected fall in sales, banking group HBOS rallied and the US Senate passed a controversial $700bn rescue package for distressed Wall Street financial institutions. But the solid gains on British and mainland European bourses vanished after more bleak economic news swept through Wall Steeet.
Government data showed US factory orders tumbled in August - the steepest fall in two years. This heightened concerns that the US economy may be tipping into recession.
A Labour Department report that initial claims for unemployment benefits rose by 1000 last week to a seasonally adjusted 497,000 unnerved investors worried not only about strains in the financial market but also the effect on the broader econ-omy. The level of jobless claims is the highest seen since the immediate aftermath of the terrorist attacks on September 11, 2001.
Credit market constraints persisted, with the cost of borrowing dollars over three months again shooting higher.
The New York Stock Exchange's Dow Jones industrial average was off about 20 points at the opening bell and later extended losses to more than 200 points. The Dow closed 348.22 points lower at 10,482.85.
In London, lower prices for commodities hit many shares. Mining stocks were among the biggest losers, Rio Tinto closed down 5.2% and BHP Billiton shed 5.7% of its value. In the oil and gas sector, BP, Royal Dutch Shell, BG Group, Tullow Oil and Cairn Energy were down between 2.9% and 9.7%.
Some financials fared better with shares in HBOS jumping more than 14% amid growing confidence its proposed takeover by Lloyds TSB will go ahead, as several big investors backed the deal.
M&G, the sixth-largest shareholder in both HBOS and Lloyds, said it supported the takeover under the original terms agreed.
Anthony Bolton, president of investments at Fidelity International and one of Britain's top performing fund managers for two decades, also said he supported the deal, although Fidelity - a top shareholder in both banks - did not say if it supported the deal.
Lloyds TSB ended the day 4.8% stronger.
On a positive note, high-street retailer Marks & Spencer jumped 8%. The stock had fallen more than 60% in 2008 before yesterday's dealing. Halfords, the UK's largest retailer of car parts and bicycles, rose 6.2% and said profit will match its profit estimates as more Britons opt to repair vehicles rather than buy a new one.
Market players said they expected the Bank of England to cut base rates next week amid worsening economic conditions.
City analysts said a bundle of bad news on house prices and car sales had negated any relief that Washington had finally found some element of unity on the bail-out of the banking industry.
On Wednesday night, the Senate voted 74-25 to pass legislation authorising the government to buy troubled assets from financial institutions rocked by record home foreclosures and sent the bill to the House.
The junior chamber rejected an earlier version of the bail-out bill on Monday night, sparking a 777-point drop on the Dow and big falls on other equity markets.
Meanwhile, the Nationwide Building Society had more grim news for the UK economy, saying house prices fell 1.7% in September to post their biggest annual drop since comparable records began in 1991.
Interest rate futures rallied as investors speculated the figures increased the chance of an imminent interest rate cut, although economists cautioned that a reduction in itself would do little to halt sliding property values.
