London stock market in turmoil as shares plunge

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City in turmoil as shares plummet

by Michael Clark

Share prices on the London stock market slumped to their lowest level in more than two years today.

Private investors were the hardest hit with the feared slowdown in the world economy forcing them to sell after borrowing to invest in ill-fated dotcom companies.

At one stage, the FTSE-100 Index tumbled 250 points which was its biggest one-day fall since the crash of October 1987. It rallied to reduce the fall to 106.8 at 5,613.9 but this was still its lowest since December 1998.

In trading this afternoon on Wall Street the Dow Jones dipped below 10,000 briefly with a fall of 331 points. McDonald's became the latest major US company to issue a profits warning. In London, blue chip stocks suffered with Cable& Wireless falling 60p to 485p. Its shares have now dropped 205p in two days, with more than £5 billion wiped from the company's market value after the economic slowdown in the US forced it to shed 4,000 jobs worldwide.

The telecoms sector has been one of the biggest casualties of the recent sell-off in shares following a stream of warnings that profits would be lower than expected.

At one point today £67 billion was wiped off the paper value of companies quoted on the London stock market. Companies and the investing public had pinned hopes on strong growth from the telecoms industry. But the US recession means expectations have had to be scaled back and that has taken a toll on over-inflated share prices.

The big banks also came under the hammer today with HSBC down 48p, or five per cent, at 817p, and Barclays down 86p at 1940p. They have lent money to the telecom companies and now look vulnerable themselves.

"It only requires one telecom company to go bust and then the whole lot may come tumbling down like a pack of cards," said one trader.Julian Petryk, senior adviser with Barclays Stockbroker Advisory said: "This certainly isn't Black Wednesday all over again - at the moment it's more of a deep grey." Private punters are being hit by recent falls. Worries about a slowdown in the world economy has left them scrambling to sell blue chip shares to cover losses accrued after the internet and high technology bubble burst.

If the collapse in share prices continues apace, it could lead to a damaging fall in the price of British goods and impact on the economy. That in turn would hasten a cut in interest rates from the Bank of England.

Geoffrey Dicks, economist at the Royal Bank of Scotland, said: "It's all about the wealth effect - if people feel less wealthy they are less likely to spend their money."

The business scene in Japan looked even bleaker. This morning in Tokyo the Nikkei 225 rallied a modest 24 points after the heavy losses of the previous few trading sessions.

But dealers say these were unconvincing performances and that fresh falls in share prices around the globe can be expected. The collapse in the Nikkei means that Japan's banking system is technically bust.

Rumours swept the Square Mile today that one of the biggest among them is about to go belly-up which would prompt a further sell-off of financial markets.

Investors in New York have been calling on the US Federal Reserve chairman Alan Greenspan to make further cuts in interest rates in order to revive the economy, but he has remained silent.

-- (in@economic.news), March 14, 2001

Answers

The collapse in the Nikkei means that Japan's banking system is technically bust.

Oh, my! This little gem was hidden toward the bottom of the article!

Don't these guys own umpteen zillion dollars in 1980s-vintage US government bonds - from back when Reagan was pumping out debt like jellybeans? What happens if they hold a fire sale on them?

-- Miserable SOB (misery@misery.com), March 14, 2001.


Fearing a Link to Japan Woes, Bush Advisers Ponder a Policy

-- (in@economic.news), March 14, 2001.

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