US fears hit world markets

US fears hit world markets

A wave of gloom engulfed global stock markets yesterday as dealers in Asia, Europe and north America took fright at the prospect of a hard landing in the United States over the coming months.

Disappointment at the failure of the Federal Reserve, America's central bank, to cut interest rates on Tuesday prompted a second day of heavy selling on Wall Street and put pressure on the dollar.

The technology-focused Nasdaq index and the broad-based Standard & Poor's 500 index both dropped to their lowest points of the year, with share prices in Tokyo, London and Frankfurt taking their lead from New York's woes.

Overnight, the Nikkei-Dow in Japan fell by more than 200 points to just below 14,000, close to its lowest for 10 years. The sell-off continued in Europe, where London's FTSE 100 closed down 118.3 points at 6176.7, before rippling back to the US where all the main share-price indices suffered heavy early losses.

By lunchtime in New York, the Nasdaq Composite was down 6%, dropping more than 150 points to 2360.99, while the blue-chip Dow Jones Industrial Average was more than 162 points lower at 10,422 points and the S&P 500 lost 32 points to 1273.53.

Some of the big names of the technology sector were among yesterday's casualties. Cisco Systems, the networking group, led Nasdaq's fall, with its shares shedding more than 11% to touch a fresh year's low of $36.50 after Merrill Lynch cut its investment rating, blaming.....continued below

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a slowdown in technology spending.

The panic in the equity market, driven by worries about the outlook for corporate profits as the economy slows, helped boost demand for US government securities. "The Nasdaq is hitting new lows and the Dow is off nearly 200 points," said Michael Maurer, debt strategist at AG Edwards. "It's a mess out there so there is a flight to safety going on."

On the foreign exchanges, the euro rose to its highest against the dollar since August.

"In an environment where relative growth performances are the dominant theme, the risk of a faster downturn in the US and concern that the Fed may not be moving quickly enough does not look very good for the dollar," said Chase economist Malcolm Barr.

"Financial markets got the verbiage confirming that the Fed sees the risks of slowdown - but then the Fed did not follow up with a rate cut."

There was some speculation in the markets that the Fed could cut interest rates be tween meetings of its open market committee - a tactic it has used in the past- but analysts suggested that such action could smack of panic, adding to market uncertainty.

President-elect George W Bush's decision to nominate Paul O'Neill, the boss of aluminium group Alcoa, as treasury secretary had little impact on the foreign exchange markets.

The improvement in the euro - helped by projections from the European central bank indicating that the 11-nation single currency zone is on track for a modestly lower but still encouraging growth over the next two years - was welcomed by European policymakers.

In an interview with the Süddeutsche Zeitung, German finance minister Hans Eichel said the single currency was being supported by the narrowing gap between growth rates in Europe and the US.

"We are seeing that not everything is golden in highly praised America even if there is a lot of glitter."

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