The London Stock Exchange's hi-tech, high-speed systems went haywire on Wednesday afternoon, and traders are rather worried that the problems may not be fixed.
At 4pm yesterday, the LSE's electronic feed suffered a serious technical flaw. Like the rest of the City, we couldn't get reliable share prices for several hours, or see how the FTSE was bearing up.
With Wall Street wobbling yesterday afternoon on the back of the fragile dollar and GM's huge losses, it was hardly the best time for a gremlin to show up.
The LSE eventually pinned the blame on a fault connection between the market and the system that displays buy and sell orders, insisting that the market itself was functioning fine.
David Buik of Cantor Index correctly predicted that the FTSE 100 would open 80 points lower, with banks under the cosh.
Midday
There's been quite a turnaround, thanks to news of the approach from BHP Billiton to rival Rio Tinto to create a $300bn mining giant. Traders had been speculating BHP might pounce once Rio's own $39bn offer for aluminium group Alcan was completed this week. Rio immediately rejected the move saying it undervalued the business.
The market seems to have been persuaded Rio should be worth more. Its shares jumped 28% on the news to £55.93, and helped pull the FTSE 100 out of its gloom. After falling as low as 6290.3 points, the leading index was 9 points ahead at 6394.1 by lunchtime. But Rio accounted for a 50 point gain, so it shouldn't be assumed all is plain sailing elsewhere.
News that the Bank of England had left interest rates unchanged at 5.75% was treated as a big yawn.
James Knightley at ING said: "There had been talk of a possible ease following disappointing survey data and ongoing worries about the state of credit markets. However, the fact that key Bank officials such as governor Mervyn King and chief economist Charles Bean had highlighted inflation "risks" in recent weeks, suggested that this was unlikely.
"Nonetheless we believe there will be scope for lower rates from the first quarter of 2008."
Elsewhere, banks were still under pressure. No one want to hold their shares while it is still not clear how much exposure any of them have to the toxic sub-prime sector. Merrill Lynch has just admitted sub-prime write-downs of $27.2bn, $6.3bn more thant expected, while Morgan Stanley is in for $3.7bn.
And there is nervousness ahead of a testimony to Congress by US Federal Reserve chairman Ben Bernanke this afternoon.
1.20pm update
Back to the Rio bid for a moment. John Meyer, the respected mining analyst who has just moved from Numis to Fairfax, said BHP may have to sweeten its reported 3 for 1 share offer with a little cash.
"Credit markets are said to be difficult for borrowing beyond three months, making a cash offer difficult although a cash sweetener could be something for shareholders to look forward to"
He tips Xstrata, up nearly 8% to £34.70, and Anglo American, 9% higher at £34.58, as two miners which are likely to benefit from the increased excitment in the sector.
And if the BHP/Rio bid rumour can come true, so might others. Traders were buying into pubs group Mitchells & Butler in the hope that Irish investors John Magnier and JP McManus might increase their 3.36% stake, which had the effect of reviving takeover hopes for the business. M&B added 34.5p to 644.5p.
But lower down the market, there looks like more trouble for dry cleaning group Johnson Service which issued a profit warning last week. Its shares fell 21% on worries about it might need to raise new equity, something chief executive Charles Skinner said last week was an option.
2.45pm
Johnson Service has now rushed out a statement in response to the concerns about its financing. It says it is in breach of its banking covenants and it working with its banks to reach an agreement. The shares are now down nearly 40%.
Overall the market is now slipping back into reverse, following an early decline on Wall Street. The FTSE 100 is down 5.1 points, but it's worth remembering this would be a near 50 point fall without the Rio effect.
4.45 Market close
So another volatile day comes to an end, with the FTSE 100 closing down 3.2 points at 6381.9. Heaven knows how investors would be feeling now if the multi-billion pound Rio Tinto bid had not happened. Rio ended nearly 22% higher at £52.96, adding nearly 40 points to the index. Banks did the real damage, as the credit concerns rumbled on, with Barclays and Royal Bank of Scotland particularly hard hit.
After a bit of a delay, the closing call on Johnson Service came in. The shares are down nearly 20% at 78.5p. Thus far the company has not returned calls to clarify the extent of its problems, so its shares could continue to come under pressure.
Finally, thanks to Murphcallthepolice for the comment, it's a joy being here in the blogosphere. Back tomorrow.
