Market rallies, then the roller-coaster continues

The London stock market roller-coaster continued today after the FTSE 100 index of leading shares yesterday fell below the psychologically-important barrier of 4,000 for the first time since 1996.

This morning the index rose nearly 70 points within minutes, but less than two hours later it stood more than 25 points down on yesterday's close.

Global markets were expected to remain volatile while awaiting the six-monthly speech later today from the Federal Reserve chairman Alan Greenspan .

Yesterday, share prices tumbled on both sides of the Atlantic amid signs investors were panicking over fears that the US economy was heading back into recession.

The FTSE fell 229.6 points, or 5.4 per cent, to 3,994.5, its lowest close since December 1996. It was the worst one-day fall since 11 September, when the terrorist attacks triggered a vast sell-off.

A total of £55bn was wiped off the value of shares, taking losses over the past six days to almost £150bn. "Confidence is shot," one trader said. "People are losing the plot. It's panic and they want to get their money out."

The rout started after Shell became the latest company to be hit by doubts over its accounting methods. A former executive warned that £5bn of bets on US energy prices could be worthless.

"If household names can't be trusted then people don't have any appetite to take risk," said David Ferguson at Barclays Private Clients. "People are happy to sell everything."

London's fall was the largest of any big market in the West, prompting speculation that important City institutions were dumping their stock portfolios.

There have been fears that life insurers will be forced to sell shares to protect their shrinking assets from further losses, creating a vicious cycle of selling. Dhaval Joshi, a global strategist at SG Securities in the City, said the market needed a clear signal that the Bank of England was not planning to raise interest rates.

The selling frenzy intensified as the Dow Jones Industrial Average plunged 5 per cent in New York, taking the benchmark US gauge close to its 21 September low of 8,234. But a dramatic rally in the last hour of trading saw US stock indices turn around, with the Dow closing just 45 points down at 8,639.19.