Traders 'blame it on Boo' as markets fall

Traders 'blame it on Boo' as markets fall

A record US trade deficit and fears that Britain's internet bubble has finally burst sent share prices on both sides of the Atlantic plunging yesterday.

The prospect of higher borrowing costs and concerns that further dot.com casualties are likely to follow Thursday's high-profile collapse of Boo.com unnerved investors who raced to dump hi-tech stocks. "It seems that nobody has kept a head when all about are are losing theirs, and blaming it on Boo," one trader said.

Yesterday's sell-off wiped more than £42bn off the value of London shares and sent the FTSE 100 index tumbling 187 points, 3% of its value, to 6,045.4. The hi-tech sector was particularly hard hit, with the Techmark index ending down 291 points, 8.7%, at 3,052.

In New York, traders were unnerved by news that the gap between US exports and imports widened to a record $30.2bn (£20.3bn) in March as a record foreign oil bill overwhelmed a rebound in exports of farm products and motor vehicles. Analysts said the ballooning trade deficit was a sign that the Federal Reserve has not done enough to cool the red-hot US economy.

Stephen Roach, chief economist at Morgan Stanley, said the market was finally waking up to the impact of higher inflation. "I think the market is in denial over the full implications of what the Fed is up to." He expects the Fed to raise rates to 7% by the end of the summer because of continued signs of an overheating economy.

At lunchtime.....continued below

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in New York, the Dow Jones industrial average was down more than 140 points to 10,635 while the Nasdaq composite index had fallen more than 120 points, almost 3%, to 3,410.

Cisco, the networking group, was particularly hard hit with a 5% decline to just under $53. In the past six weeks the company has erased the 50% run-up in its stock market value made this year. Its decline prompted speculation on some websites yesterday that John Chambers, the company's chief executive, was about to step down - a rumour vehemently denied by the company.

The decline also knocked Cisco from its slot as the world's most highly valued technology company. Intel, the semiconductor maker, was worth about $38bn more than Cisco by lunchtime.

European stock markets were caught up in the hi-tech sell-off. In Germany the Neuer Markt closed at 6,489.72, down 307.78 points, a fall of 4.5%, while in Paris the Nouveau Marché closed down 284.94 points, 6.1%, at 4,275.23.

Internet startups which have yet to make money are particularly vulnerable to interest rate worries because analysts downgrade their estimates of the current value of future earnings streams.

Among the hardest hit was the IT services sector where the market is worried that consolidation is slowing. Commenting on the sector, Nomura analyst Sean Maher said: "It seems we've gone from mindless euphoria to angst and despair."

Nomura yesterday downgraded the whole of the IT services sector on valuation grounds, saying that no company seemed to be taking a clear lead by restructuring.

Simon Strong, technology analyst at West LB Panmure, said: "Sentiments are getting worse and technology stocks are in danger of being oversold."

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