NAGGING worries over the direction of global interest rates, a poor start on Wall Street and further rioting in Indonesia combined to depress London blue chips yesterday but top shares did manage to bounce off the session's lows.
City analysts described the situation in the Far East as particularly worrying.
Jeremy Batstone, head of research at NatWest Stockbrokers, said: ''Indonesia looks like a disaster in the making.
''The big concern is that it could lead to a slowdown for Hong Kong's economy with other markets being impacted.
''We are expecting the news to get worse before it gets better.''
Barclays Stockbrokers analyst Stan Adams warned: ''If Indonesia collapses into civil war, this will hit Britain more than most because of the close relationships we have with the region.''
Meanwhile in New York, the Dow was rattled by a profit warning from computer supplier Hewlett-Packard..
London's FTSE-100 benchmark share index, down 70 points at one stage, closed 24.4 points, or 0.4%, weaker at 5948.5.
The FTSE-250 index of midcap issues outperformed the leaders, climbing 6.7 points to a record 5795.6 as sterling fell to three-month lows.
Activity picked up to a total 800 million shares traded, with half in the top 100 stocks. But dealers said most investors were still sitting tight.
Stock traders in the Square Mile said there was some concern at slightly stronger-than-expected April inflation data in the United States although analysts doubted the figures were strong enough to prompt the Federal Reserve to raise interest rates next week.
Core inflation rose 0.3% in April, above expectations for a 0.2% rise.
In the debt market, UK gilts ended lower in hefty volume. June futures settled 0.13 lower at 107.94.
Sterling tumbled in early trading on European foreign exchange markets as support from Wednesday's strong British earnings report faded.
The pound slipped to DM2.87 and $1.62 before recovering in late dealing as hopes of a cut in UK base rates evaporated.
In the share market, defence manufacturer Alvis, up 3p to 192.5p, denied supplying the Indonesian Government with armoured vehicles after it came under fire from pressure groups.
Standard Chartered, another company with Asian links, ended down 22.5p to 806p.
Traders at first downgraded shares in BG after disappointing results, only to start buying as the day drew on, leaving the company's shares up 11.25p to 335.25p.
Pharmaceuticals group Skyepharma confirmed its drug delivery technology Geomatrix was being put into phase III trials, lifting its shares 8p to 93.5p. Lucky shareholders saw their investments gain nearly 14%.
Bank of Ireland dipped 34p to 1258p after its results came broadly into line with expectations on a day when several banking stocks tumbled.
Barclays fell 22p to 1747p and Lloyds TSB slipped 14.5p to 893.5p. Bank of Scotland skidded by 14p to 718p, while Royal Bank of Scotland lost 13.5p to 990p
Computer distributer Ilion issued a profit warning that sent shares into free-fall, losing 76p to 112.5p.
Acquisitive Scottish transport group Stagecoach shed 28.5p to 1206p after John O'Brien, the rail franchising watchdog, said he saw only limited consolidation of the railway industry ahead.
Mining group Billiton announced it was spearheading an #813m investment in an aluminium plant in Mozambique.
The venture was seen as risky by the City, with shares sinking 6.75p to 168p.
Westminster Health Care dived after a profits warning and the resignation of its finance director. Its stock plunged 66.5p to 339p.
Other big losers were AB Food, down 25p to 545p, General
Accident, 47p easier at 1323p, and Commercial Union 37p weaker at 1053p.
Matalan, the out-of-town retailer, started trading on the Stock Exchange yesterday and rose 40p from the placing price of 235p to close at 275.5p.
Elsewhere, Chelsea's victory in the European Cup Winners' Cup on Wednesday saw shares in parent Chelsea Village gain half-a-penny in early trading but closed unchanged on the day at 83p.
First division Sunderland jumped 32.5p to 517.5p after its victory against Sheffield United saw it win a place in the English Premiership play-off final.
Shares in defeated Sheffield United were relegated 2p to 30p.
Sunderland will meet Charlton Athletic, up 6p to 60p, who edged past Ipswich in the other play-off.
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