As Sweden and Italy pushed up their rates, moves that would normally be blissfully ignored, shares and government stocks had a torrid session, with indications of further falls in after- hours trading.
At the close the FT-SE 100 index was 28.8 points down at 3,138.2; gilts crumbled by approaching two points.
With electricities having only a modest presence in the index, the sector's jubilation at the far from draconian approach of the regulator, Professor Stephen Littlechild, had little impact on the blue chip measurement.
But the electrical surge helped power the second line FT-SE 250 index 9.7 higher to 3,726.6. London Electric, expected by many to suffer at the Littlechild hands, gained 61p to 645p; South Wales 36p to 722p; South West 52p to 714p and Southern 51p to 714p.
Leaders, in addition to the interest rate factor, also took the latest round of results poorly, with BOC, for example, losing 31p to 714p on its third quarter figures.
Storehouse was one of the most actively traded shares as Smith New Court placed 6 million at 220.5p. The price shaded 2p to 222p.
Boots fell 9p to 525p, reflecting Hoare Govett sale advice, and Upton & Southern, on its Reject Shop disaster and the signalled rescue rights issue, lost another 1p to 11p. The shares were 26p before the Reject problems became known.
Smith hit RMC, down 28p to 971p, by switching its recommendation from hold to sell and failed to offer much joy to Ladbroke, the leisure group, off 2p to 169p, despite a profit up- grading from pounds 133m to pounds 140m. Next year's estimate was lifted from pounds 172m to pounds 178m.
Allied-Lyons slipped 6p to 587p as Robert Fleming Securities was said to be suggesting a switch into Grand Metropolitan, up 4p to 429p. Fleming met Allied on Wednesday.
Charter, the industrial group, was unchanged at 743p as the outcome of its bid for Esab, the Swedish welder, grew even more uncertain.
Unless Charter, which has won control, is content to live with an unhappy minority it will almost certainly be forced to increase its offer.
Swedish institutions have already rejected the bid and Esab's chairman, who had earlier supported the offer, said he could no longer back the pounds 260m takeover.
Bengt Eskilsson, Esab's chairman, said: 'There is reason to re- evalue the offer due to recent rises in Esab's share price as well as Esab's rising profit level.'
British Gas, helped along by Lehman Brothers support, put on 4p to 286p; Shell's figures lowered the shares 12p to 718p.
Banks had another worrying session, with Lloyds Bank off 8p to 547p following the revised Cheltenham & Gloucester proposal; HSBC fell 14p to 764p ahead of results and Standard Chartered lost another 12p to 247p following its figures this week.
An institutional meeting failed to move the publisher Hodder Headline, unchanged at 353p.
Euro Disney was little changed at 125p. The Stock Exchange buying-in programme to force short sellers to deliver stock has been halted although it has still to be completed.
It is expected to resume when the rights shares start trading later this month.
Shanks & McEwan, the waste disposal group, improved 13p to 97p following an upbeat shareholders' meeting. Takeover speculation is another influence, with Ocean rumoured to be interested.
Bullers, the giftware group, jumped 3.25p to 16.75p on the Jim Slater involvement and Elswick gained 5p to 17p following the Ferguson Industrial Holdings offer.
Cannon Street Investments, the mini-conglomerate revamped by David Smith, the ex-Gateway supermarket chief, was another to ignore the gloom, up 2.5p to 33p. There is talk of the acquisition of an electronics distributor to plug in to the group's Altai operations.
Umeco, a maker of aircaft refuelling vehicles, continued to stengthen, jumping 8p to 66p, its highest since 1991.
AromaScan, a new issue stock, touched 104p, before ending the day at 98p, against a sale price of 100p.
The battle for Waterglade International, the struggling property group headed by David Cunningham, is hotting up. The directors, trying to resist rebellious shareholders, are thought to have completed a debt-for-equity exchange with a leading US bank and could be on the verge of clinching other restructuring moves. The shares languish at a lowly 3p.
UK Estates, the old Sheafbank Property, held at 26p. It seems to be winning increasing institutional support. Equitable Life Assurance has picked up 600,000 shares, lifting its stake to 7.42 per cent. The company is run by David Ormerod, former Legal & General property chief, and took full control of the British property interests of Philips, the Dutch group, earlier this year.
The FT-SE 100 index slumped 28.8 points to 3,138.2 on fears of higher interest rates but the FT-SE 250 index rose 9.7 points to 3,726.6. Turnover was 694.4 million shares with 29,000 bargains logged. Government stocks were weak.
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