It was the worst setback since October 1992, when worries about interest rates and the stability of the Government ahead of the Tory party conference sent the index down 103.4 points.
The index, which hit a 3,520.3 closing high at the start of this month, is now at its lowest for 10 weeks. Shares are likely to fall further today, unless there is a significant New York rally in second half trading.
The dramatic reversal was not provoked by heavy selling. Although selling intensified as the session progressed much of the fall was the result of heavy marking down as market makers took defensive action. 'It only needed a suggestion of selling in one stock and the whole sector was smashed lower,' said one stockbroker.
But there was determined unloading of bonds. The gilts market was savaged with falls of more than pounds 3 among the longer maturities. The US bond market was down, dragging New York equities lower; European bonds were also savaged.
Most overseas share markets were lower with London surviving rather better than some.
But it was an unexpectedly black day, with Nicholas Knight, for so long the market's superbull, adding to the gloom by adopting an increasingly cautious stance. Last week he cut his year-end index forecast from 4,000 to 3,500. Yesterday he talked about interest rates increasing and fretted the year would be a volatile one.
There is renewed upward pressure on US interest rates with talk they could more than double to 7 per cent.
Any further US increase will eventually take much of the steam out of the market, which has been fuelled to record highs by the poor fixed-interest returns offered by financial institutions. A French interest rate reduction was below expectations and only managed to cause widespread disappointment.
The growing political volatility in Russia was another bearish influence. Second thoughts about the response to Wednesday's government gilt auction were unfavourable.
Unease over some company results, mainly British Gas and Shell, and end-account action piled on the agony.
Shell fell 23p to 699p with heavy selling of Royal Dutch Shell in Amsterdam, where there was acute disappointment over the dividend increase, spilling into London. After currency adjustments the Dutch dividend increase is only 1.8 per cent.
British Gas's huge restructuring costs left the shares 11p down at 328p and National Westminster Bank continued to feel the pinch from its results on Wednesday, falling a further 14.5p to 489p.
There was a scramble to take profits at British Aerospace, down 47p at 502p.
Glaxo Holdings' fall was restricted to 5p at 677p following a positive lunch at SG Warburg but General Electric Co fell 9.5p to 324.5p after Credit Lyonnais Laing made cautious noises following a meeting.
Hanson, still bugged by talk of a big US tobacco acquisition, fell 4.5p to 274.5p. There were suggestions RJR Nabisco, raising dollars 2bn, had pulled out of a conference because of the imminence of a tobacco deal with Hanson.
Cadbury Schweppes was also said to be on the verge of a US success. A story resurfaced that it had at last persuaded the Dr Pepper/ Seven-Up board to adopt a more compromising mood.
The British group has a 25.9 per cent Dr Pepper stake and clearly wants to get much closer to the third biggest soft drinks group in the US. But the Americans have resisted its efforts.
Cadbury, down 8p at 509p, is said to have succeeded in getting Dr Pepper to approve the appointment of a Cadbury representative in the boardroom. Such a move could allow Cadbury to equity account, improving its profits by 4 per cent.
Berisford International's rights issue claimed a 96.18 per cent take up; the shares edged 1p higher to 235p. Burton, the clothing retailer, was busily traded and managed to end 0.5p higher at 51.75p.
Carr's Milling Industries continued to run on takeover hopes, closing 8p better at 217p; Tiphook, the troubled container leasing group, rose 4p to 56p on bear covering.
Aviva Petroleum ended unchanged at 54p following a drilling report. The company is due to undertake City briefings next month.
Monument Oil & Gas shaded to 63.5p with Kleinwort Benson saying the shares are a buy. The securities house is enthusiastic about Monument's South American interests. The recent Sierra Chata (Argentina) discovery and its overall involvement in the region 'has huge potential that has not yet been fully appreciated by the market', it says.
Hopes are high that after a long period in the doldrums GM Firth, down 0.5p at 33.5p, is heading for better times. The Wilkinson family, although retaining a substantial stake, is retiring and Sir Alan Thomas, head of exports at the Ministry of Defence, is to become chairman of the steel group. A restructuring will ease borrowings. The shares are probably up with events.
Westminster Scaffolding, which completed a restructuring early this month, is regarded as ripe for shell interest. Assets of its scaffolding business are thought to be 1.5p against a price of 3p, down 0.25p. Grosvenor Development Capital, now under the wing of Mercury Asset Management, has trimmed its stake in the company but remains a substantial shareholder.
The FT-SE 100 index ended near its lowest of the day, down 74.4 points at 3,267.5. The FT-SE 250 index was off 51.9 to 3,923. Turnover reached 753.9 million shares from 33,594 deals. The account ends today, settlement is on 7 March.
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