The stock market continued to languish yesterday as early gains evaporated and investors suffered further losses.

Although the FTSE 100 Index had a good start, rising nearly 100 points in the first hour of trading, the gains petered out during morning dealing and by the close the market was down 37.5 points at 3858.

It closed below 4000 for the second session in a row.

Even a relatively upbeat opening from Wall Street failed to inspire confidence on this side of the Atlantic.

Wall Street was very volatile in the first half hour of trading, with the Dow Jones jumping ahead in the opening minutes, then falling back, only to rise again.

Henk Potts, equity strategist at Barclays Private Clients, said: "Confidence is still being knocked all over the place."

He said the markets were seeing hugely volatile sessions, partly due to hedge funds driving shares down and people simply throwing in the towel.

"Until we get something really concrete and big institutional players come into the market it is going to be very difficult.

"There's the odd bargain hunter but it's not in large enough quantities to balance it out.

"No one can really call the bottom of the market."

Alex Scott, equities analyst at Seven Investment Management, said: "There is no real news to drive it.

"If anything, when trading started investors were looking for a bounce in New York to drive a rally here. But I think nerves have probably failed a little."

Among shares falling in London were those of insurance firms, whose businesses suffer in bear markets. Prudential, Aviva (formerly known as CGNU) and Horsham-based Royal and Sun Alliance all slid heavily.