THE London 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 mid-afternoon the market was down 26.8 points at 3868.7.

The Footsie closed below 4,000 for the second session in a row - down 37.5 at 3858.0.

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.

A large leap however is unlikely to last, traders warn.

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

But the economy is set to make a strong recovery even though consumer spending will slow, a leading think-tank has forecast.

Improving conditions in the manufacturing sector were bolstering the economy, said the National Institute of Economic and Social Research.

"A strong recovery is under way as exports and manufacturing output pick up from the low levels reached at the start of the year," it said.

* House prices continued to rise during July but the rate of growth appears to have slowed to a more sustainable level, a report said yesterday.

Property website Rightmove.co.uk said house prices in England and Wales increased by 1.6 per cent in the four weeks to July 19, to take the average asking price to £154,071.

In the North, prices have risen by 7.3 per cent between the start of the year and July 19, while in Yorkshire and Humberside they are up by 7.5 per cent.

In London, house prices soared by 19.5 per cent, while in Wales and the Midlands they have gone up by 13.6 per cent