Further fall sees FTSE shed 500 points this month

THE London market suffered a roller-coaster ride yesterday as turbulence in world markets continued to undermine shares.

After its worst session in more than four years on Thursday, the FTSE 100 index see-sawed between positive and negative territory amid uncertainty over credit markets and US sub-prime mortgage defaults.

At the close, the benchmark index was 36 points lower at 6,215.2 - notching up the biggest weekly loss for the index since March - as early selling in US markets encouraged London to give back earlier gains.

The top flight is now back where it started the year, having lost more than 500 points in the space of a month.

The session initially saw the Footsie fall as much as 58.9 points to 6,192.3 before recovering to stand 64 points higher at 6,315.2 later in the day.

But the market sank lower on more selling in the US futures market, although another heavy sell-off late in the session to match Thursday's panic failed to emerge as better-than-expected consumer confidence figures and GDP data arrested a steeper decline in the markets.

Heavyweights from the banking sector are due to report interim results next week, but in the meantime the shares endured a difficult session.

Lloyds TSB lost 1.5p to 537p and Barclays fell 7p to 682p, while Alliance & Leicester was down 14p at 1,017p, even though it posted results at the top end of City forecasts.

HSBC was an exception - ahead 10.5p at 880.5p - while Northern Rock made a late surge to top the Footsie risers' board with a near-3 per cent gain of 22.5p to 792p, following results earlier this week.

Meanwhile, the planned merger between closed life insurance specialist Resolution and life and pensions group Friends Provident saw both firms enjoy contrasting fortunes.

Resolution rose to second spot after it emerged on Thursday that Pearl Assurance, a major shareholder, wanted a rethink on the deal as it believed Resolution could find other ways to boost shareholder value.

That lifted Resolution by 18p to 649.5p, but the threat to the merger meant Friends Provident fell 1.5p to 180p.

Housebuilders were also in favour as investors backed the sector following Thursday's sell-off.

Persimmon was ahead 21p at 1,099p and Barratt Developments up 14.5p to 904.5p as traders said the shares looked cheap.

But heavily weighted miners dragged on the index with Anglo American the leading faller - down 114p at 2,739p - followed by Vedanta Resources, off 66p to 1,618p, and Antofagasta down 25p at 674p in a nervous wider market.

Broadcaster BSkyB saw its shares dip despite reporting full-year figures in line with management and market expectations. Its shares were down 7p at 668.5p.

SOME SOLACE IN RELATIVELY BENIGN NUMBERS FROM THE US

BETTER economic figures from the United States yesterday could offer at least a degree more stability to worldwide markets.

The keenly awaited statistics, following signs that the slump in the US housing market has been having a negative impact on the wider economy, showed that the US economy grew faster than expected over the past three months, recording the best quarterly performance since early 2006.

The economy grew by 3.4 per cent on an annual basis, bouncing back from a dismal first quarter, when it grew just 0.6 per cent. The figure exceeded expectations by analysts, who forecast a 3.2 per cent increase.

Nevertheless, the figure masked a further deterioration in consumer spending between April and June and continued weakness in the housing market. The growth in consumer expenditure slowed to 1.3 per cent from 4.2 per cent earlier in the year, reflecting growing caution among households about the economic outlook.

Investment in house building fell 9.3 per cent on an annual basis, although the fall was less severe than the 15.8 per cent decline seen in the first quarter.

General economic activity was boosted by strength in business investment, government spending and rising exports. At the same time, core consumer prices - excluding food and energy - rose by 1.4 per cent over the period, their slowest quarterly rate of growth since 2003.

Analysts said the figures should give some reassurance to volatile equity markets.

The Fed has kept interest rates on hold at 5.25 per cent for several months as it balances concerns over the extent of the housing slump with signs that inflationary pressures may be easing.

DOW JONES 13,265.47 -208.10

US SHARES fell as persistent concern about financing for corporate takeovers amid a broadening deterioration in credit markets offset positive data on economic growth.

Comments by Treasury secretary Henry Paulson briefly lent some support, but the underlying tone on Wall Street remained nervous, a day after equities suffered their second-worst decline of the year.

Thursday's selling wiped out more than $300 billion (148bn) in the value of the S&P 500.

Energy companies led decliners yesterday. Chevron fell more than 1 per cent despite reporting a rise in quarterly profits. Selling in financial shares also weighed on the market, with Citigroup among the biggest decliners.

Financials were among Thursday's big fallers as investors fretted that a worsening climate for takeover financing and losses in the sub-prime mortgage market may spill into the broader economy.