Morning market rally runs out of steam as US misery piles up

This morning's market rally ran out of steam in mid afternoon deals after yet more disappointing news from the US.

On Wall Street, the DJIA was 70 points lower at 10309 after the number of new jobless benefit claims rose to the highest level since February this week. Economists had been expecting the number to be lower.

Downbeat updates from companies including technology giant Cisco, beauty group Estee Lauder, department store chain Kohl's and burger chain Wendy's sparked more concern about weakening consumer demand  

The FTSE 100 followed suit down 7 points to 5238, adding to losses of more than 2% yesterday. 

Given the index jumped more than 10% in July investors are feeling increasingly nervous that that optimism was misplaced given the economic uncertainty across the globe. 

Giles Watts, head of equities at City Index, said: 'Investors remain deeply cautious about the short term prospects for the markets and for the global economy after the revised outlook from central banks in UK and across the water.'

But the index was outperforming its peers across Europe boosted by rumours of a bid for Cairn Energy and thanks to gains by heavyweight GlaxoSmithKline after US regulators approved its epilepsy drug Potiga. Cairn added 6.8p at 451.6p and GSK was up 21p at £11.86.

Banks were mostly lower with Barclays down 9.5p at 304p, Lloyds down 0.49p at 69.6p and RBS 0.02p lower at 45.98p as investors fret that last week's stellar second quarter results may be unmatched in the months ahead if the current disappointing data continues.

Fears that Lloyds may find it difficult to find a new source of borrowing if the Bank of England holds by its pledge not to extend its loan also weighed.