Interest-rate fears prompt sharp shares sell-off

Fears of interest rate rises on both sides of the Atlantic prompted a sharp sell-off on the London stock market yesterday, wiping £30bn off the value of leading British companies.

The FTSE 100 index slumped 148.0 points to 5978.4, its lowest close since February 12. The decline takes the benchmark stock market indicator nearly 10% below the all-time high of 6620 touched little more than a month ago, and leaves top share prices up by less than 2% on the year.

The sell-off has been cruel to technology shares, particularly once high-flying US internet stocks. Internet companies closer to home are also feeling the pressure. Yesterday, shares in personal finance web site eXchange Holdings fell 13p to 187p, a 7% discount to the 200p-a-share flotation price set just last Friday.

The fall means that the nearly 9,000 individuals who snapped up stock in the hope of a quick profit are already nursing losses. Freeserve, the UK's biggest internet company quoted on the stock market, fell another 15p to 179p yesterday, but is still holding above its 150p flotation price.

"A very cold wind is blowing through internet valuations at the moment and it doesn't have a great deal to do with fundamentals," said Miles Saltire, an analyst at WestLB Panmure.

Fears of rising interest rates in the US have dogged shares for the past several few weeks, but analysts said that yesterday's sell off may have been exacerbated by a lack of liquidity during the holiday period.

British shares have been doing dramatically worse than their US counterparts recently, with the Dow Jones Industrial Average having fallen by just 4.6% over the past month.

Two thirds of fund managers surveyed by broker Merrill Lynch look for the next move in rates to be up. "It's not a great environment to hold shares," said Trevor Greetham, global strategist at Merrill Lynch. "Shares tend to do well with interest rates falling."