Shares plunge again as traders say it's a bear market

Shares dived again today, taking the City into its first bear market for five years.

The classification of a bear market, a sharp slide in stock value over a prolonged period, came as one broker admitted: "Confidence is shot to ribbons."

The FTSE 100 dropped more than 150 points to 5358.7 at one stage amid growing fears that a full-scale recession is unavoidable.

The slide was led by banks and property-companies after one City analyst warned the housing market could take 20 years to recover from the credit crunch.

The volatility of the market was heightened by rumours sweeping dealing rooms, including a suggestion that Marks & Spencer is being eyed up for a takeover - perhaps even by former bidder Sir Philip Green. Elsewhere, house builder Persimmon said it was cutting more than 1,000 jobs because of the housing crisis and shares in struggling mortgage lender Bradford & Bingley were declared "worthless" by a firm of City brokers. At its worst point today the Footsie had fallen 20 per cent since its last peak in October - the usual definition of a bear market. The previous bear market lasted from autumn 2000 to spring 2003 when share values halved.

Analysts said they could see no sign of light at the end of the tunnel and warned financial and property markets would get worse as the economy deteriorates.

The slide has huge implications for pension funds, many of which were just beginning to emerge from the deficits built up in the first half of the decade. David Buik of BGC Brokers said: "These equity markets look awful. Sentiment is terrible and confidence is shot to ribbons."

Ted Scott, manager of the F&C UK Growth & Income Fund, said: "While we are now technically in a bear market for equities, in terms of the economic backdrop we are still not in a recession.

"At present the UK economy has only just begun to slow after a robust 2007 when GDP growth was above trend. Despite months of gloomy headlines, house prices have so far only fallen a few per cent from their peaks and unemployment is low, albeit rising. Therefore, if a recession does become a reality - and the risks lean that way - there could be further to go."

At one point all 100 firms listed in the Footsie were down but a rally meant that the blue chip index was only 80 points lower by tea-time.

Some of the biggest fallers today included household names such as Taylor Wimpey, down 10 per cent, Royal Bank of Scotland, down 3.6 per cent, and ITV which saw a 4.5 per cent fall.

Richard Hunter from broker Hargreaves Lansdown said: "There are still big concerns over inflationary pressure. It's difficult to see where a positive catalyst is going to come from. The level we're at is bear market territory."

The Council of Mortgage Lenders said the mortgage market is still showing few signs of recovery.

The number of loans for house purchase increased slightly from April to May to 52,700, but is still 44 per cent lower than May last year.

Mark Hake, analyst at City brokers Merrill Lynch, said in a note to clients that the downturn in the property market looks "considerably worse" than the early Nineties crash.