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FT-SE 100 falls by 2.8%

In a bad day for the UK stock market leading shares fell by 2.8% after digesting the potential S&P ratings downgrade and worse than expected jobless data in the US. Even though there are few people in the UK who had expected a "V" shaped bounce in the UK economy there is real danger of a relapse after a relatively stable period when we did start to see signs of a potential recovery.

The fall of 122.94 points is the largest since 27 March and sees the UK index down by 2% over the year although it has risen substantially since hitting a six year low on 9 March. There were many predictable victims during today's fall including the banks and commodities related companies which had performed fairly well since the recent low. There is no doubt that the next few days and weeks will be a significant test for the resolve of UK and overseas investors as the much hoped-for positive news on the UK economy fails to materialise in the short term.

As the UK government, via the Bank of England, continues to plough significant funding back into the economy via the quantitative easing program all eyes are on a potential increase in liquidity in financial markets and eventually a recovery in the economy. How long this will take and how expensive it will be remains to be seen.

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