Stock Market Bull Run Falters

* FTSE falls more than 100

* Investors fear rate increases

The London stock market Friday suffered its biggest points fall in one day since the crash of 1987 and its biggest percentage drop in five years, as the global bull market in equities appeared to falter.

The FTSE 100 index shed 125.5, or 2.5 per cent, to 4,868.8, as nervousness about Wall Street and a fear of interest rate rises in Germany combined to persuade investors to take profits after the market's recent record-breaking run.

In New York, the Dow Jones Industrial Average dropped more than 240 points, continuing the spell of weakness that saw the market shed 156 points on August 8 and another 101 points on Tuesday.

 

The Dow was off 247.37 at 7,694.66 just before the close. The worldwide bull market this summer has carried the Dow past 8,000 and Footsie beyond 5,000 as low inflation and low interest rates persuaded international investors to move their money out of cash and into shares.

Thin August markets may have exacerbated the extent of Friday's decline. In London, selling pressure was confined to the leading stocks, with the FTSE 250 and SmallCap indices actually rising on the day.

Chris Carter, managing director of global equity strategy at UBS, said: 'It's been a correction waiting to happen. Nowadays this is the way that markets move. There is an instant re- pricing in which not much selling occurs but everyone wakes up to the overpricing.''

What appears to have triggered Friday's sell-off is a decline in the dollar against the D-Mark, as investors started to fear that the Bundesbank might raise interest rates to defend the German currency and head off inflationary pressures. The dollar fell nearly three pfennigs to DM1.818 in London Friday.

The weakness of the D-Mark has helped European exporters in recent months, reviving continental economies. A revival of the D-Mark would threaten that recovery and put pressure on other European currencies in the run-up to monetary union. With many European markets closed for Assumption Day, the pressure fell heavily on Amsterdam, which dropped 4 per cent, and Frankfurt, which fell 2.8 per cent. Mr Richard Kersley, UK strategist at Barclays de Zoete Wedd, said: