Admiral, the car insurance group, bucked the weak market trend that saw the FTSE 100 extend its losses over the past two sessions to 221 points.

Its shares rose 2.6 per cent to 995p on news that Admiral will be added to a number of widely followed MSCI’s indices, including its UK Standard index, later this month.

Dealers reckoned tracker funds would need to acquire 6.9m Admiral shares – the equivalent of almost 12 days average trading volume – ahead of its inclusion after the close of business on November 25.

Several other stocks were affected by the MSCI reshuffle. Pub company Enterprise Inns, which will be demoted to the MSCI UK Small Cap index, dropped 23.2 per cent to 84½p, while Rentokil Initial, which is heading the same way, dipped 1.1 per cent to 46p.

Meanwhile, the FTSE 100 closed 64.7 points, or 1.5 per cent, lower at 4,182 after a volatile session in which the blue-chip index traded in a 200-point arc. A bleak Bank of England inflation report and a weak Wall Street opening weighed on the market.

There was also talk that a large hedge fund had been liquidating positions. This was said to have hit a number of stocks including software company Autonomy, down 9.5 per cent to 858p.

Elsewhere, the FTSE 250 lost 153.3 points, or 2.4 per cent, to close at 6,251.2. Turnover was again below average with less than 2.5bn shares changing hands.

Hedge fund manager Man Group led the market lower. Its shares fell a further 23.4 per cent to 190p, which means they have halved since last Thursday’s shocking half-year results. Wednesday’s drop was largely down to another downgrade – this time from Citigroup.

Cutting its rating from “buy” to “hold”, analyst Haley Tam said Man was now too reliant on its flagship managed futures fund AHL and could be forced to deleverage its Glenwood fund.

Traders said Man, which is one of the few financial stocks that can be “shorted”, was also being used by hedge fund investors as a way to hedge their positions.

London Stock Exchange eased 5.3 per cent to 579½p ahead of Thursday’s half-year results. Broker Keefe, Bruyette & Woods said it had lowered its forecasts to reflect tougher market conditions and pricing changes.

Prudential dropped 12.6 per cent to 276p unsettled by a bearish Goldman Sachs note on the US insurance sector, where Pru has a presence through its Jackson National Life operation.

“We believe the next 12-18 months will bring continued asset deterioration [notably in commercial real estate] as well as increased losses from embedded guarantees in the annuity products,” Goldman said in its report, which pushed the prices of several US insurers lower.

HBOS fell 2.4 per cent to 96.8p amid reports that Bank of China had decided not to make a bid for the ailing mortgage lender.

Elsewhere in the banking sector, Standard Chartered lost 7.5 per cent to 795½p after Dresdner Kleinwort said it expected the emerging markets bank to raise £2bn-£3bn.

Tour operator Thomas Cook dropped 10 per cent to 152.2p on concerns that demand for foreign holidays could be affected by the weakness of sterling.

A sell recommendation from Investec Securities also weighed on Thomas Cook. The broker expressed concerns that Thomas Cook’s cash strapped parent Arcandor might be forced to sell some or all of its 53 per cent holding.

Vodafone again bucked the weak market trend, rising 6.1 per cent to 122p on further positive reaction to Tuesday’s interim figures. “We think the new CEO’s straightforward and direct approach to dealing with Vodafone’s problem markets will lead to improvements in the coming quarters,” Merrill Lynch said.

Among the mid-caps, Carphone Warehouse was marked 6.2 per cent lower at 142¾p following the revised earnings guidance from Best Buy, its joint-venture partner.

Pennon, the owner of South West Water, shed 8.9 per cent to 520p as on the back of Goldman Sachs downgraded to “sell”. Goldman said it was concerned about the outlook for Pennon’s waste business Viridor, citing the fact that the price of recycled paper has fallen from £70 a tonne in September to £20.

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