LONDON markets have fallen heavily this week, to a five month low. This is due to a combination of a further retreat on the US markets and also renewed fears of a rise in interest rates.

Retail price inflation came in higher than expected this month, with the high cost of petrol taking its toll.

With oil prices continuing to rise, it is feared the Bank of England may be forced to raise interest rates.

Inflationary pressure is also building in other parts of the economy. Seasonal food prices showed their largest September increase in 17 years, while the services sector also saw prices rising.

The technology sector has taken a battering, with investors still waiting for a turn in the US Nasdaq.

Instead, this has been subject to further bad news from highly rated US growth stocks. Lucent Technologies, the telecoms equipment company, which has recently done a deal with Geo Interactive Media, said its fourth-quarter profits would be much less than expected.

This is due to a slowdown in sales of its optical technology. Also, Motorola, the maker of mobile phones and computer chips, revealed that its forecast profits would be disappointing. Its shares fell 18 per cent on the back of this, with nearly $12 billion wiped from the company's market value. UK stocks such as Bookham Technology and Marconi, were both badly affected following these announcements.

The banking sector has also been hit badly this week, after Halifax announced that it is to introduce a new current account, with an interest rate of 4pc. This may lead to a new bank war, as it attempts to double its market share to bring it up among the bank heavyweights. It hopes to gain two million new customers from the big four high street banks, which caused shares in Royal Bank of Scotland and Lloyds TSB to plummet.

On a positive note, defensive stocks have come into play, as investors are getting increasingly nervous over growth stocks. Imperial Tobacco and BAT both saw good gains this week. Also, Scottish and Newcastle, has seen some renewed optimism ahead of a visit next week by investors and analysts to its Kronenbourg brewery ion Strasbourg.

Finally, oil stocks have continued to rise, due to increasing oil prices and investors' warming to reports of falling US stockpiles. Rob Arkwright, Hargreaves Hale & Co