It was a red-figure day for the City, but trading was thin and a weak-ish Wall Street rally failed to lift the mood.

The FTSE 100 fell 37.3 to 5293.9 but clearly recovered from the day's low of 5238.7.

Market volume amounted to 670m shares.

Jeremy Batstone, head of research at NatWest Stockbrokers, said London had been pulled away from lows as the US equity market recovered on news of a tough austerity package in Brazil.

"It appears the authorities in Brazil are doing their level best to avoid devaluation."

"The imminence of the crisis has perhaps dissipated a bit," he added.

Investors in New York speculated that the budget package could help see-off the threat of a US recession, pulling Wall Street out of an early dive - and this in turn lifted the mood in the City.

But a fragile retailing sector kept the London market under pressure.

Mr Batstone said the domestic environment remained extremely uncertain.

"News from the corporate sector is unashamedly bleak right now." Sainsbury, Kingfisher and Whitbread had been "stock market darlings" for a long time, "but now profit expectations are going to have to come down", he said.

Disappointing second half sales numbers from Sainsbury triggered a sympathetic markdown across the sector. Sainsbury itself fell 6.1% to 525 pence while Asda dropped 5.6% on talk that Merrill Lynch has shifted its stance to on the stock to "neutral" from "outperform" and reduced current year forecasts.

Marks & Spencer, Safeway and Tesco all fell more than 3%.

Noted risers included a recovering BAT after Tuesday's losses and Amvescap, which climbed 5.6% after announcing funds under management rose £49m to £241.2bn in September from their level at the end of 1997.