Turbulent week wipes 5% off value of UK shares

WORLD markets will be braced for further volatility on Monday after another turbulent session yesterday that saw London's FTSE 100 end the week 5 per cent lower, wiping £72.7 billion from the value of the UK's biggest companies.

Early gains in US markets, which were later reversed, helped European shares pull back from their earlier lows.

At one stage The Footsie had plumbed depths below 4,950 on fears that the global economy is heading back into recession, but recovered ground to close 1 per cent lower at 5,040.76. The benchmark index briefly entered positive territory during the afternoon.

European stocks fared worse as sovereign debt and bank funding concerns led a broad-based flight from the equity market. The FTSEurofirst 300 ended down 1.7 per cent on the day, and 6 per cent lower for the week.

Will Hedden, a sales trader at IG Index, said the traditional holiday season was contributing to the market's volatility.

He said: "Looking into next week, GDP readings from both the UK and the US will be closely watched but the big risk is surely that as volumes continue to ebb away while the August lull takes its grip on London, volatility is at risk of jumping far higher once again. It's been a turbulent week for markets and there's no reason to believe that we've seen the last of this."

He said there were various theories behind yesterday's partial recovery, but it was probably a combination of positive notes coming out of the US central bankand traders covering their short positions for the weekend.

The London market also embraced good news on public borrowing. UK government borrowing fell drastically last month, although economists still fear deficit reduction targets for the year will be missed. Public sector net borrowing, excluding financial interventions such as bank bailouts, dropped to just 20 million, compared to 3.5bn in the same month a year ago, the Office for National Statistics said. The figure was substantially less than the City expected.

Early gains in US markets, which were later reversed, helped European shares pull back from their earlier lows.

At one stage The Footsie had plumbed depths below 4,950 on fears that the global economy is heading back into recession, but recovered ground to close 1 per cent lower at 5,040.76. The benchmark index briefly entered positive territory during the afternoon.

European stocks fared worse as sovereign debt and bank funding concerns led a broad-based flight from the equity market.The FTSEurofirst 300 ended down 1.7 per cent on the day, and 6 per cent lower for the week.

Will Hedden, a sales trader at IG Index, said the traditional holiday season was contributing to the market's volatility.

He said: "Looking into next week, GDP readings from both the UK and the US will be closely watched but the big risk is surely that as volumes continue to ebb away while the August lull takes its grip on London, volatility is at risk of jumping far higher once again. It's been a turbulent week for markets and there's no reason to believe that we've seen the last of this."

He said there were various theories behind yesterday's partial recovery, but it was probably a combination of positive notes coming out of the US central bankand traders covering their short positions for the weekend.

The London market also embraced good news on public borrowing. UK government borrowing fell drastically last month, although economists still fear deficit reduction targets for the year will be missed. Public sector net borrowing, excluding financial interventions such as bank bailouts, dropped to just 20 million, compared to 3.5bn in the same month a year ago, the Office for National Statistics said. The figure was substantially less than the City expected.