A day of nerves for the City

A wave of relief swept across the City this morning as a stock market rally brought an end to two days of steep falls that wiped more than £60 billion off shares and left the FTSE 100 wallowing at its lowest level for five years.

The FTSE opened up 40.2 points ahead at 4432.8 after a late rally on Wall Street last night before America's four-day 4 July holiday.

However, today's gains are only a small dent in this week's mountainous losses. Yesterday, the FTSE 100 slumped 154.2 points, losing 3.4 per cent of its value to finish at 4,392.6, its lowest close since 28 April, 1997, and before Labour came to power.

The drop of 300 points over the past two days is worse than the falls inflicted on the market in the week after the terrorist attacks of 11 September and has been blamed on a number of factors, including fears of more accountancy scandals and the possibility of more terror strikes.

Doubts are now being aired about the reliability of accountancy practices at some UK companies, with one dealer saying: "We are beginning to see the spread of a lack of confidence in companies' stated accounts."

In New York, the Dow Jones Industrial Average, which had breached the lows reached in the aftermath of 11 September for the first time this week, managed to staunch the flow of money leaving its biggest companies closing 47.22 points up at 9.054.97.

This gave traders grounds for cautious optimisim today and in early morning trading shares opened up across all the major European markets with banks and telecom stocks rallying in London.

Traders expect a fair amount of bargain-hunting as investors try to pick up cheap shares.

CityIndex's market watchers said: "We are very oversold from a technical point of view and a good bounce today would likely give some investors the confidence to enter the market again." However, no one is certain how long it will last.