London shares hit 33-month lows

Shares in London closed at their lowest levels for nearly three years as the economic gloom deepened.

The FTSE 100 index of leading shares ended the day down 44.5 points at 5275.7.

CBI survey

Export confidence at three-year low

Decline in domestic and export orders

Overall business confidence down

Lack of investment plans

Orders expected to rise slightly in next four months

But more job losses expected

Further slump in exports predicted

The index has not closed this low since October 1998 in the wake of the Asian financial crisis. It first reached these levels in September 1997.

Gains on Wall Street - reversing Tuesday's sharp falls - failed to prevent the London market losing its early impetus and heading into negative territory.

UK investors' mood turned gloomy when a key quarterly survey of business trends indicated confidence over export prospects among bosses had fallen to a three-year low.

Attention also focused on mobile phone giant Vodafone, which faced tough questions from investors at its annual meeting over executive pay packages.

Its shares fell 4% to 138p - their lowest since 1998.

GDP slowdown

The retail sector's recent good run also came to an end, with shares in Marks and Spencer, Somerfield and Sainsbury's all heading lower.

FTSE fallers

Invensys - down 12%

Abbey National - down 8.5%

Marks and Spencer - down 3%

Bank of Scotland - down 4%

Vodafone - down 4%

Abbey National also fell, as its first half profits fell short of expectations and the markets reacted coolly to its plans to seek acquisitions after fighting off a bid from Lloyds/TSB.

A report by HSBC bank added to the despondent mood by suggesting annual UK Gross Domestic Product (GDP) growth will slow to 2% in the current quarter, from 2.6%, when figures are released on Friday.

Uncertainty

David Ferguson, of Barclays Stockbrokers, said: "Earnings forecasts are coming down and as they continue to be revised downwards that places a cloud over the market.

Earnings forecasts are coming down and as they continue to be revised downwards that places a cloud over the market

David Ferguson, Barclays Stockbrokers

"There is also concern about when the global economy will see a recovery and there is a large degree of uncertainty about that.

"While uncertainty remains and because we are in the summer trading is thin - that is a recipe for the markets to drift down."

Stock markets in Frankfurt and Paris also closed significantly lower.

US economy

The FTSE's tumble came despite modest gains in Japan, where markets shrugged off gloomy corporate news from the United States.

Tuesday was dominated by more news of more than 35,000 job cuts, at firms ranging from US telecoms giant Lucent to European conglomerate ABB and media goliath Reuters.

Job losses this week

Lucent: 20,000

ABB: 12,000

Invensys: 2,500

Reuters: 1,100

Fujitsu: 9,000

Arrow: 1,000

Federal Reserve chairman Alan Greenspan had also told the Senate Banking Committee that another cut in interest rates might be on the cards if the US economy did not improve.

But Mr Greenspan said the bank's series of rate cuts was now working, and that monetary policy was still a useful tool to prod the economy.

"At the end of the day it does seem to be effective," he said.

Last week's casualties

Tuesday's job cuts continue a recent spate redundancies, which have been particularly acute in the previously booming high-tech sector.

Last week, Canada's Nortel Networks said 7,000 jobs would be cut during the next two months, the balance of the 30,000 job cuts it announced earlier in the year.

Recent job losses

Am Express: 5,000

Nortel: 7,000

Philips: 5,500

Marconi: 4,000

Ericsson: 12,000

Europe's biggest consumer electronics company Philips also announced last week that it expected to cut 4,500 to 5,500 jobs, or 3% of its work force, in its semiconductor unit.

In the UK, the beleaguered telecom company Marconi wants to cut 4,000 jobs across the world, despite the ire of UK trade unions.

Meanwhile, the Swedish mobile phone company Ericsson hopes to save 20bn kronor ($1.87bn) in costs through cutting 12,000 jobs and closing factories worldwide.