The prospect of higher US interest rates coupled with slightly disappointing news on the economy gave investors an excuse to take profits last week and by Friday's close the FTSE World index was trading 1.6 per cent lower.
Interest rates in the US were left at 1 per cent but it was the change of wording accompanying the announcement which gave cause for concern. The Fed made no mention of the fact that rates could stay on hold for a “considerable period” but instead stated that it could afford to be “patient” in changing its stance.
In the UK, the FTSE 100 fell by 1.6 per cent to its lowest level in six weeks although there were some notable winners, including British Airways, whose shares ended the week 7.4 per cent higher following its latest cost-cutting plans.
Mid and small-cap stocks outperformed, with the FTSE 250's 1 per cent gain on Friday leaving the index 0.4 per cent lower over the week while the FTSE SmallCap index gained 0.2 per cent.
In the US, the Dow Jones and the Nasdaq climbed on the back of strong economic data and further encouraging corporate results before seeing their sharpest one-day loss since late October and early December respectively. By the end of the week, both the Dow and S&P 500 had fallen by 0.9 per cent while the Nasdaq was 2.7 per cent lower.
A hostile bid by French drug maker Sanofi Synthelabo for Aventis helped push stocks in Europe to a 17-month high before profit-taking set in. By the end of the week, the FTSE Eurotop 300 index had fallen by 1.1 per cent, with Germany's Dax, which was last year's star performer, falling by 2.2 per cent.
In Japan, four consecutive days of losses early in the week, the longest losing streak since August, left the Nikkei 225 2.6 per cent lower over the week. Concerns over bird flu resulted in most Far East markets nursing losses, with Hong Kong's Hang Seng falling by 3.4 per cent while Thailand fell by 7.4 per cent In the bond markets, prices fell following the Fed's statement, leaving 10-year Treasury yields at 4.14 per cent while in the UK, gilts of the same maturity ended the week at 4.89 per cent.