Investors braced for further falls on FTSE as UN reports on Iraq

Investors are today steeling themselves for further falls in the stock market, taking the FTSE 100 index to its lowest for more than seven years. That would put the market on course to challenge the all-time record of receding for 14 successive days, set in September 1947. It fell for 13 days on the trot in 1974, and this time it has retreated for 10 days continuously.

Justin Urquhart Stewart, market strategist at the financial adviser Seven Investment Management, said: "The trouble is that there is no reason for investing institutions to feel the need to commit to the market. I would not be at all surprised if we see further weakness coming through, taking the index below 3600." It closed on Friday at 3603.7.

Today and tomorrow are likely to be nervous trading sessions for the London Stock Exchange. Today the United Nations weapons inspectors are due to report on progress in Iraq, which will be closely scanned to see if it will provide an excuse for the US to attack, or lead to further delay. And tomorrow US President George Bush is due to deliver his annual State of the Union address, which will contain his latest views on the Iraq situation.

From the British point of view the uncertainty will continue at least until Thursday, when key economic data will be published, for mortgage lending and consumer credit and confidence. There will also be figures for US GDP in the final quarter of last year.

While there may be buying by investors covering short positions or speculating on a rally, if the index falls significantly below 3600 it may trigger further selling by insurance companies to protect their solvency ratios. This would push share prices even lower, producing the much-feared self-feeding frenzy.

The actuaries Hewitt Bacon & Woodrow has estimated that the reduction in share values has cost the 100 companies making up the FTSE 100 as much as £100bn in terms of their employee pension schemes, which could force them to take drastic action.

Raj Mody, HBW's principal consultant, reportedly said: "These pension funds are delicately balanced. Even slight changes in the market can have dramatic consequences. This could mean axing dividends, cutting staff pay or benefits, or restricting capital investment. It's never been this bad."

Mr Urquhart Stewart said: "Investors should be prepared for more bad news. The best we can hope for is a drift downwards. I just hope there won't be a major sell-off."

The FTSE 100 has fallen 48 per cent from its high point in December 1999. This does not come close to the 73 per cent fall between September 1972 and January 1975, but it has been spread over a much longer period – and, as Mr Urquhart Stewart implies, many commentators expect the pain to continue for some time yet.

However, it is striking that the London stock market has fallen much further than New York in the past three years. If Wall Street's Dow Jones had fallen as far, it would be little more than 6000 instead of the 8131.01 at which it actually stands.