Tricky Tuesday traders 'like headless chickens'

Even the most experienced City figures said they had never known a day like it as traders were reduced to "headless chickens" trying to follow the gyrations in prices.

In the first half-hour of trading the market looked set for a repeat of yesterday's meltdown with the FTSE 100 index of top shares slumping by 239.5 points. That was a 4.3 per cent fall on top of yesterday's

5.5 per cent crash, bringing the losses over 24 hours to £120 billion.

But as rumours of imminent deep interest rate cuts in America swept the London market, the Footsie staged a remarkable rally with shares reaching a high of 5642.3, up 64.1 points. The 300-point about-turn in less than a hour of trading is thought to be the most dramatic in share market history, excepting declarations of war and 9/11.

David Buik of City bookmakers Cantor Index said: "I've never seen anything like it in all my born days. Everyone's running around like headless chickens." Dealers said share prices were on a knife edge with Wall Street forecast to open anything up to 600 points lower this afternoon. By lunchtime the Footsie stood at 5551.7, down 26.5.

The recovery in London came as rumours swept the City that interest rates will be slashed around the world to stave off a recession.

One trader said: "There's rumours about concerted rate cuts ... they're talking about the US Fed, the European Central Bank, the Bank of England and the Swiss National Bank all cutting rates."

It was reported that US authorities could even cut rates by a full percentage point before the end of the month. There was also some buying as City "bargain hunters" took the opportunity to pick up shares on the cheap. Private investors were advised not to panic but wait until the world market turbulence calms down.

Jeremy Batstone, head of equity research at Charles Stanley said: "Panic selling now is like shutting the stable door after the horse has bolted. People do tend to get spooked but what we need to assess is whether there's more to come or the market will stage a bounce. I think it will be the latter."

This morning's drama came after stock markets throughout Asia tumbled sharply despite desperate appeals for calm from government leaders.

Bombay's Sensex index was temporarily suspended because of the weight of selling after an 11 per cent collapse in share prices. India's finance minister P. Chidambaram said: "There is no reason at all to allow the worries of the Western world to overwhelm us."

In China, the powerhouse of the Asian economic revolution, the Shanghai stock index nosedived more than seven per cent amid reports that the Bank of China is about to announce £4 billion losses on the US sub-prime mortgage crisis.

But any reassurances will not ease growing fears that the share collapse will have huge consequences for millions of savers and consumers.

Almost everyone who has a pension is directly linked to the share market. In the last three years the FTSE 100 companies have successfully plugged a black hole in their pension funds which totalled £75 billion. That was done partly by companies raising the amount they paid into pension funds and increasing the amount they charged workers but it was also largely eliminated by the rising stock markets around the globe. Any prolonged downturn would raise new fears over the health of pension funds.

London's housing market is driven at the top end by City bonuses. Despite the subprime crisis, which broke last summer, an estimated 4,000 City executives will have or be about to pick up £1 million-plus bonuses for 2007. But with no certainty about this year's level of pay-out bankers are putting off moving house.

London house prices began to fall last month and the average time for houses to remain unsold on the market also hit a peak of 99 days. These levels of price stagnation have not been seen last recession in 1992.