Markets stumble over weak tech shares

Investors decide Tuesday's gains too good to be true
Written by Matthew Broersma, Contributor

London stock markets showed just how fragile they still are Wednesday by reversing Tuesday's gains. And as on Tuesday, the slide downward was led by volatile technology, media and telecoms (TMT) shares.

Also weighing on markets was a decline on Wall Street, which began before London's close of trading Tuesday. The Dow ended down 80 points, twice its half-time loss as London trading drew to a close but the tech-heavy Nasdaq fell from just 40 points down to chalk up final session losses of as much as 172 points.

At midday Wednesday the FTSE 100 stood about one percent lower at 6,229, with the techMARK 100 down 2.2 percent at 3,741.

Industry analysts said the bear market atmosphere is likely to continue, despite temporary gains such as those of Tuesday. "The strong performance in the stock market over the past few days has taken me by surprise," said Royal Bank of Scotland technical analyst Brian Kiely. "However the strength has not been enough to change the bear trend that has dominated this year."

Two of the biggest players in Wednesday's slide were British Telecom (quote: BT) and Vodafone AirTouch (quote: VOD).

Other early fallers in the FTSE were some of Tuesday's strongest gainers, mostly from the technology and media sectors and including Psion (quote: PON), Celltech, Reuters and BSkyB (quote: BSY).

Top UK ISP Freeserve (quote: FRE), which gained 11 points Tuesday on speculation it would be acquired by Germany's T-Online, lost four pence, or about one percent, to settle at 393p by midday.

Dealers said the main focus of attention was the Bank of England's interest rate meeting which starts Wednesday and concludes with a decision at 1100 GMT on Thursday. Economists expect the Bank to raise its benchmark lending rate, despite the risk that it will drive sterling even higher. But they see it as an extremely close call.

"We've got the rate decision hanging over the market and not much else to go on, so we are not going to see a lot of volume either," said a dealer.

Corporate features included results from telecoms group Thus (quote: THUS), showing a pre-tax loss of £63.1m after a £43.5m charge. The company also said it will spend £180m this year on capital investment against £161m last year, and it revealed new e-commerce plans.

Analysts were expecting a pre-exceptional loss of £17.2m.

Reuters contributed to this report.

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