Investors said that while economies the world over show signs of slowing or sliding deeper into recession, leaders of the most powerful nations have domestic political problems that preclude plans to shore up imperiled economies.
"We need aggressive world leadership to provide solid fiscal and monetary management, but Yeltsin, Kohl and Clinton all have problems of their own," said Guy Monson at Sarasin Investment Management. "In the absence of a world rescue plan, we're looking at downgrades for global growth, particularly in the US."
On Friday, the FT-SE 100 fell 18 points to 5,118.6, its lowest closing price since 29 December. The index fell 0.94 per cent in the week. HSBC Holdings, Britain's biggest bank, slipped 10 per cent in three days.
"I think the most worrying development in the past few days has been the market's reaction to the easing of monetary policy across the globe," said Scott Jamieson at Scottish Mutual Portfolio Managers. He said signs that German, US and UK central banks could ease rates in coming months haven't helped.
Domestic reports in the next few days include the retail price index and average wages. The minutes from the Bank of England's monetary policy committee in August will also be released.
The benchmark 10-year gilt yield rose last week by 2.9 basis points to 5.18 per cent. "I don't think it means we've seen the end of the drive lower in yields," said Steve Andrew at Merrill Lynch. "We've just come to a stage where yields in the short end are pushing pretty low. It's not a sign the market is turning."
"We now live in a period of no inflation," said Richard Buxton of Baring Asset Management. "Real yields on bonds are low and can go lower - there is going to be a re-rating of equities."
Investors said the potential impeachment of President Clinton and the problems in Russia could also weigh on equity markets. "It's a crisis of confidence," said Simon Toynbee at Majedie Investments. The preoccupation with domestic problems is doing nothing to halt emerging markets heading towards devaluation, and other economies towards recession.