- guardian.co.uk,
- Monday January 21 2008
Shares in London plunged today following heavy losses in Asia overnight, as intensifying fears over the state of the US economy triggered a wave of selling and talk of market meltdown.
The FTSE 100 index of leading shares was a sea of red, opening nearly 3% lower this morning and steadily plumb new depths.
By midday it was down 5.3% at 5,588.8, a 312.9 point drop. Analysts were predicting it was on track for its biggest percentage fall since October 26 1987, when the index lost 6.19%.
But by 3pm the index had recovered somewhat to 5673, down 3.88% or 228.7 points.
Miners and financial institutions were among the biggest fallers, as investors were unimpressed by a stimulus package for the ailing US economy announced by George Bush on Friday.
A few risers stood out, with Northern Rock surging 27p, or 41%, to 91.5p. Insurer Friends Provident was the FTSE 100's lone riser at one stage. It jumped 6p, or 4%, to 158.5p after US private equity firm JC Flowers confirmed it was considering a takeover bid.
Oil prices also slipped, with US crude dropping more than $1 a barrel to below $89 - indicating that traders expect demand may fall on the back of a slowdown in the world's biggest economy. That knocked energy-related shares in London, with Cairn Energy one of the FTSE 100's biggest fallers, as it was down nearly 8% at £23.31.
Bush's emergency $145bn (£74bn) package of tax cuts spooked the US financial markets on Friday, wiping out early Wall Street gains. Some analysts saw the plan as "too little, too late", while others said it suggested the problems in the US economy are even worse than previously thought.
In Japan, the Nikkei stock average today slumped almost 4% to a two-year low of 13,325 points, taking it back to the level it was at on October 25 2005. The Japanese market has lost almost 13% since the start of the year – compared with the FTSE's fall of around 12% since January 1.
Tokyo stocks had rallied briefly at the end of last week in the run-up to Bush's announcement, but analysts said expectations were too high. After a slow start to the year the Nikkei put on a combined 2.6% over Thursday and Friday.
"I think the 13,300 level is about bottom but you need a catalyst for a major recovery in stock prices," Kasuhiro Takahashi, general manager at Daiwa Securities, told Guardian Unlimited.
He said the stimulus could come when major corporations announce their third-quarter results next week. "If the October to December results are favourable then the earlier expectation that earnings will decline will have proved too pessimistic."
The fall in Japanese shares was also triggered by mounting concerns about the health of the domestic economy. Consumption is still weak and more trouble for the US economy will hit corporate income and wage hikes in the spring.
"A lot of today's problem is that Japan expected too much of the economic plan last Friday and stocks rose too far," Takahiko Murai at Nozomi Securities told Reuters. "Of course, it's only natural. The US economy makes up several percent of the world GDP so when it has economic problems the rest of the world suffers."
The banking sector suffered big losses amid continued fears over the knock-on effects of the US sub-prime loan crisis. Mitsubishi UFJ Financial, Japan's largest bank by market value, fell 6.2% to ¥915 (£4.42), while Sumitomo and Mizuho were down 5.2% and 4.6%, respectively.
Major exporters also suffered, with Toyota and Honda both losing out. Matsushita, the world's biggest producer of consumer electronics, lost 4% to close at ¥2,050.
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