The FT-SE 100 index retreated 19.3 points to 3,089.1 and would have looked even more distressed if water shares had not turned in another strong performance.
Shares were even prepared to ignore a firm New York opening to concentrate on the likelihood of higher US inflation and interest rates.
Government stocks were weak, reflecting the American bond market and signals that German interest rates had fallen far enough for the time being. The market's misery was compounded by yet more gains by metals and commodities.
The index fall below 3,100 is unsettling. It is at its lowest since the start of the month and there are growing worries that it will soon be testing 3,000.
The trading comments covered a wide spread of companies. Inchcape, the international trader, expects first-half profits to be lower, partly because of the strong yen. Ocean, the transport group, was cautious about its first-half performance and United Carriers had the sorry task of saying profits would be lower than last year's pounds 4.1m.
Inchcape responded with a 21p fall to 499p, Ocean lost 13p at 274p and United Carriers, which came to market at 153p in February, slumped 33p to 115p.
Jeyes, the disinfectant producer, tumbled 41p to 335p following comments that its domestic operations were suffering from tough competition and Cemetone, a building, chemical and paint group which reversed into Multitrust in January, lost 16p to 80p after it warned about first-half profits.
Marks and Spencer's figures failed to offer inspiration, with the shares lowered 12.5p to 412p. A similar fate befell Thorn EMI, down 28p to 1,068p.
But the gloom washed over water shares. Most moved higher. Northumbrian gained 14p to 573p, Severn Trent 11p to 518p, Welsh 18p to 629p and Yorkshire 13p to 526p.
Waters have been at high tide for the past three trading days since confidential letters outlining Ofwat's expected tough new prices attitude started to be distributed. But there is a suspicion (could there actually be a leak?) that the regulator's proposals are not as strict as some feared.
Ofwat is not due to announce its pricing verdict until the end of July.
Ladbroke fell a further 7p to 175.5p as more analysts downgraded after Monday's meeting. Smith New Court cut from pounds 143m to pounds 133m and from pounds 185m to pounds 174m.
Betterware, the direct selling group, continued to react to its figures, falling 14p to 109p.
The Telegraph, the newspaper group, dropped 17p to 571p as Cazenove and Goldman Sachs at last got rid of the remainder of the 9 per cent stake acquired from Conrad Black, the group's chairman and controlling shareholder.
It seems that the two securities houses paid 585p for the shares, sold the first blocks at 587p but had to settle for 571p for the not inconsiderable rump. Seaq showed a 17 million turnover.
Eurotunnel managed to recover 5p to 360p as manoeuvres over its pounds 900m rights issue continued. P&O, which should be a beneficiary of the Eurotunnel discomfort, sank 18p to 651p as its cross-Channel rival Stena Sealink was reported to have slashed fares by up to 20 per cent.
Marley, the building products group enjoying one of its periodic takeover flurries, held at 164p.
Laura Ashley, the fashion retailer where there is talk of a bid from Next, clung stubbornly to a 1p gain at 84p.
APV, the engineer, edged forward 1p to 124.5p following an encouraging trading statement. Some wonder whether Siebe, unsuccessful when it bid eight years ago, could be tempted into rebidding.
Burmah Castrol lost most of an early gain ahead of an investment presentation today. There was talk that some forecasts had already been lifted. The shares ended just 1p higher at 881p.
Sanderson Electronics, making a three-for-one bonus issue, edged ahead 1p to 359p, a peak. Panmure Gordon expect profits to rise from pounds 3.3m to pounds 4.15m in the year to September, with pounds 5.1m next year.
Beverley, a little engineer, held at 8.5p. It is thought to be on the verge of seeking cash through a rights issue to fund an acquisition.
Formerly called Petrocon, it once bid for the engineer James Wilkes.
European Colour, the chemical colour manufacturer, produced a 91 per cent profits gain to pounds 1.22m, pushing the shares 3p higher to 51.5p. The group continues to trade well and Audrey Carroll, at stockbroker John Siddall, has lifted her forecast from pounds 1.6m to pounds 1.7m. She rates the shares a buy. The company, with 1,700 shareholders, is debt-free and thinking about acquisitions.
Bison Industrial Group is the latest addition to the growing 535 market. Trading has started in its shares with an opening price of 9.5p. At the moment it is classed as a management consultancy. But Bison intends to develop into a conglomerate, picking up a range of businesses that it thinks are in need of its particular management and financial support.
The FT-SE 100 index closed 19.3 points lower at 3,089.1 and the FT-SE 250 index lost 17.9 to 3,691.4. Turnover was 555.7 million shares with 23,461 bargains. The account ends on 3 June with settlement on 13 June. Government stocks fell by up to pounds 1 1/2 .
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