Stocks Tumble on Fears of Long War

April 1, 2003
By Vincent Boland in New York and Ed Crooks in London

Stock markets around the world had their worst day since the war in Iraq began 12 days ago amid investor concern about the political and economic implications of a long and costly campaign.

In a day of sharp changes of sentiment, US stocks tumbled from the start after new figures confirmed that the economy had stalled. The news intensified the gloom that has fallen on the market in recent days after military setbacks in the war and signs of disagreement within the Bush administration over strategy.

Peter Hooper, chief US economist at Deutsche Bank, said the market setback was not surprising given the over-optimistic expectations that fuelled the pre-war rally. "I expect to see more of that ground lost as the reality sets in a bit more," he said.

Asian markets were hit by the additional worry over the outbreak of lethal pneumonia, which has begun to disrupt business in Hong Kong and elsewhere. Analysts said the outbreak could have an impact on economic growth. Goldman Sachs is expected to cut its forecast for growth in Hong Kong this year from 3 per cent to about 2 per cent.

The spread of the virus adds to the difficulties already being felt by retailers and restaurants in Hong Kong. They are still suffering from the bursting of a property bubble five years ago and high unemployment.

The impact on the huge Chinese economy is harder to determine. The outbreak is believed to have originated in Guangdong. Last week the government confirmed that 806 people had fallen sick and 34 had died.

Nervous investors sold stocks around the world. The Dow Jones Industrial Average ended 1.89 per cent lower, falling to 7,992.13. Technology and airline stocks were especially badly hit.

Asian markets were more severely hit. In Tokyo, the Nikkei tumbled 3.7 per cent to 7,972, while in Hong Kong the Hang Seng index was 2.6 per cent lower at 8,634. European markets also tumbled. London's FTSE 100 index fell 2.5 per cent, the CAC 40 index was 4 per cent lower, and the Dax 30 index fell 3.7 per cent.

The main worry was the war in Iraq and its economic and financial impact. The dollar came under pressure and the oil price rose despite reassurance from the White House that supplies had not been disrupted.

David Rosenberg, chief North America economist at Merrill Lynch, said the US economy may be in a "double dip" recession - a factor that has been haunting global stock markets. A double dip occurs when an economy trying to emerge from recession stops growing again.

The Chicago index from the National Association of Purchasing Management showed a steeper than expected fall from 54.9 to 48.4 in March.

More data due this week is expected to confirm the US economy is contracting.

Song Seng Wan, regional economist with brokerage GK Goh in Singapore, said he changed his forecast of a 4 per cent rise in tourist arrivals in Singapore to a 7 per cent fall this year.

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