Psychological blow as Footsie slips below 5,000

A NERVOUS day on the London stock market yesterday saw the FTSE 100 fall below 5,000 for only the third time since the beginning of the sovereign debt crisis, writes Perry Gourley.

At one point during a rollercoaster day on world markets, the index of leading shares fell as low as 4,928.14 but recovered to close up 0.5 per cent or 25.2 points higher at 5,066.81. But £78 billion was wiped off the value of the top listed companies as the FTSE100 ended 5.6 per cent lower over a troubled week.

The fall below the 5,000 level was seen as significant by traders. Clem Chambers of financial website Advfn believes it could signal a worrying turn. “Big round numbers are psychological and this is the mother of psychological financial crises,” he said. “The market may bounce back, but unless the governments of Europe find a solution fast, the FTSE will find itself heading quickly below 4,500, on its way to 4,000 and perhaps beyond.”

Other world markets also recovered some of the week’s lost ground on expectations policymakers would take further action to ease the eurozone debt crisis, but commodities continued to fall broadly on worries about a global economic slump.

Market talk that the European Central Bank is considering stimulus measures to cope with the region’s sovereign debt crisis helped boost sentiment, although investors remained cautious as speculation of a Greek default gathered pace.

Brent crude oil slid to a six-week low near $103 a barrel and gold and silver fell to their lowest point for more than six weeks.

Peter Cardillo, chief market economist at Rockwell Global Capital, said: “It’s all on the news out of Europe. Large institutions are selling whatever they can to take profits, which explains the fall in gold and silver.”