FTSE rebound gives brief respite

A semblance of normality returned to the FTSE 100 this morning, after a day of panicked selling.

Last Updated: 31 Aug 2010

The index of Britain’s biggest public companies endured its biggest fall since 9/11 yesterday, dropping 5.5% or 323.5 points to close at 5,578.2, its lowest level since June 2006. There were similar losses in Asia (with the Chinese, Hong Kong and Japanese indices all more than 10% down) and elsewhere across Europe, as fears of a US recession sparked a major sell-off.

This morning the FTSE was initially at it again, falling almost 200 points lower – before everyone realised things were getting a bit ridiculous and started buying again. Soon it was back above its opening price – but it’s likely to have a volatile day, particularly when New York opens. Last time we looked, the index was still bouncing around like Jeremy Paxman in a pair of M&S underpants.

It just goes to show how jittery traders are at the moment, as the stream of economic bad news just seems to keep on coming. In the UK, government borrowing hit an all-time high last month; meanwhile oil prices are on the slide, and the IMF’s managing director Dominique Strauss-Kahn warned that the US slowdown (she’s avoiding the nasty ‘r’ word for now) has left world economy facing a ‘serious situation’.

Some of the biggest losers in the UK have been the mining companies. For a while now the prospect of more deals in the sector have kept prices high and propped up the index, but now this appears to be receding, investors rushed to offload their shares. The likes of Xstrata and Anglo American all saw billions wiped off their market values.

On the other hand, some of the least popular stocks on the market recently have been coming back into favour – proof that, as ever, these big sell-offs always go too far. Housebuilders like Taylor Wimpey (currently up nearly 10%) and banks like RBS and HBOS all saw some serious action.

Of course this welcome injection of common-sense may be short-lived. Once the traders get back to Wall Street this afternoon after yesterday’s public holiday, there’s likely to be a big drop in US stocks – and that could spook investors on this side of the Atlantic now. But for now at least, the rot appears to have been stopped...

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