But the setback coincided with fresh evidence of revival in the corporate sector. The number of business failures fell for the first year since 1987, while the number of start-ups rose for the first time since 1989. The Confederation of British Industry called for a cut in interest rates to keep recovery on track.
In early trading the FT-SE index was nearly 19 points up on Wednesday's close at 3,480.8, boosted by the futures market. But reported selling of the March futures contract by a US investment house and a weak start to trading on Wall Street soon changed the mood. The index closed 33.2 points down on the day at 3,428.8.
Many dealers expect the recent gain in share prices partly to be reversed, but most believe that the setback will be temporary and that the market will make significant gains through 1994. Most analysts expect the index to end next year at about 3,700.
Some analysts expected the bull run to resume today, noting that thin trading on previous New Year's Eves had produced some spectacular gains.
The market may take encouragement from fresh evidence last night that prospects are improving for the corporate sector, with figures showing an accelerating fall in the number of company collapses.
Dun & Bradstreet, the business information group, said 12,364 businesses had gone to the wall in the last three months of the year, nearly a quarter fewer than in the same period a year earlier.
The number of businesses failing in 1993 as a whole was 11 per cent down on last year at 53,733, still higher than in any of the 12 preceding years.
Anthony Nelson, Economic Secretary to the Treasury, seized on the figures. He said business failures had fallen earlier and more sharply than in previous economic cycles. The figures showed that recovery was 'well under way'.
Barclays Bank predicted that 409,000 new businesses will have been set up this year, 13 per cent more than in 1992. The bank forecast that the number of start-ups would stay at that level in 1994 or rise slightly.
It also predicted that the number of closures - in which, unlike D&B, it includes sole traders - would have dropped by 6 per cent this year to 515,000. The stock of businesses should stop falling at the end of next year.
Sir Michael Angus, president of the CBI, said prospects 'look decidedly more hopeful than they did a year ago'. But he added that a big uncertainty was the reaction of consumers to the tax rises announced in this year's Budgets. 'The Chancellor and the Bank of England should, we think, be ready to reduce interest rates further - indeed we think they could already be lower without putting the Government's inflation target at risk,' he said.
Richard Brown, deputy director of the British Chambers of Commerce, said rates 'must be held at a low level to maintain consumer demand and ease the debt burden on the corporate sector'.
Gross mortgage loans by the main UK banks fell by 2.6 per cent in November to pounds 1.58bn, according to the British Bankers Association. But it said the fall was almost certainly normal for the time of year.
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