World Stock Markets Slip Lower

January 27, 2003

US shares have tumbled for the seventh time in eight sessions, as fears over a war with Iraq continued to haunt investors.

Wall Street's poor performance compounded a day of gloom on European stock markets, with key indexes in London, Paris and Frankfurt all moving substantially lower.

In New York, the Dow Jones industrial average was down 156 points at 7,974 by late morning, having dropped 5.3% last week.

The effect of fear, uncertainty and shattered confidence hold the market in a vice-like grip of despair - David Buik, Cantor


In London, the FTSE 100 index closed 123 points, or 3.4%, lower at 3,481.

Insurers fall

The index has now chalked up an 11-day losing streak, the longest in its history, and is at its lowest close since October 1995.

Some of the biggest fallers were insurers Royal & Sun Alliance, Aviva and Prudential - they each fell by 7-8% on worries they might have to sell more of the shares they own in order to maintain solvency requirements.

Once the war is launched... I expect big drops in oil prices, and gold prices, a strengthening US dollar and a rally in the stock market - Tom Carpenter, chief economist Chevy Chase Trust

How low can the markets go?

The falls have been blamed on worries over a possible war with Iraq and jitters over the outlook for the UK economy and company profits.

At one point on Monday, the FTSE 100 touched the level - 3,465 points - at which it was half the level of the all-time high reached in December 1999.

Crucial week

Analysts said the coming week could be vital in determining the timing of any action against Iraq.

UN weapons inspectors were reporting on Monday to the Security Council on their efforts in Iraq, while US President George W Bush delivers his State of the Union address on Tuesday.

Market experts said uncertainty was one of the key factors unsettling investors.

"The effect of fear, uncertainty and shattered confidence hold the market in a vice-like grip of despair," said David Buik of spread betting firm Cantor.

Sir Howard Davies, boss of the UK's financial regulator, said the past year had seen "some of the most difficult conditions experienced in financial markets in living memory".

Tom Carpenter, chief economist at Chevy Chase Trust said he expected stock markets to rally after any Iraq war.

"Prior to the initiation of hostilities we could have very weak global stock markets, but once the war is launched and as soon as there is credible evidence that the war will be short and casualties low, I expect big drops in oil prices, and gold prices, a strengthening US dollar and a rally in the stock market, in the contect of tax cuts and low interest rates."

http://news.bbc.co.uk/2/hi/business/2697291.stm