Fears of a new wave of losses from the credit squeeze spread around the globe yesterday, savaging bank shares for a second day in a row and depressing stock markets.
In spite of data showing that twice as many US jobs as expected were created in October, investors in Europe remained worried that banks and other financial institutions face heavy losses arising from the troubled US mortgage market and related securities.
As usual, the Irish market failed to escape the pain, with the Iseq index as a whole falling by 1.68 per cent after a decline of 2.1 per cent on Thursday.
The banks were hit hard, with Irish Life & Permanent under most pressure as it fell by 5.6 per cent. Bank of Ireland and AIB were down 2.7 per cent and 2.1 per cent, respectively.
Andrew Wilkinson, senior market analyst at Interactive Brokers in London, said sentiment had been hit by "a daisy chain of market reports predicting continued writedowns and runaway credit losses" at the largest banks and brokerage firms.
Merrill Lynch led the fallers as the investment bank tumbled more than 8 per cent, extending its fall over two days to 14 per cent. Barclays dropped nearly 6 per cent, hit by rumours that it had approached the Bank of England for funding. The central bank denied that it had made any emergency loans to banks at its penalty rate yesterday.
Analysts suggested that the broad-based decline was due to fresh worries that banks will have to shore up their balance sheets by raising capital and may have to take more big writedowns in the fourth quarter, reflecting continuing declines in the value of subprime mortgages and related securities.
On a choppy day on Wall Street yesterday the Dow Jones Industrial Average was down 0.3 per cent by lunchtime, while the S&P 500 fell 0.5 per cent. By last night, US shares were rising again.
In Asia yesterday Tokyo retreated by 2.09 per cent, Hong Kong lost 3.25 per cent, Shanghai 2.3 per cent and Taipei 3.4 per cent.
The bleak mood in equity markets countered strong US employment figures released before the US markets opened. A better-than-expected 166,000 rise in US payrolls pointed to potential inflationary pressures.
However, the problems in the financial sector and worries about how a continuing credit squeeze could spill over into the real economy led investors to bet that the US Federal Reserve could cut rates again soon.
Concerns about the US in general and the rush to get out of risky assets were highlighted by the dollar hitting a new record low against the euro of $1.4525 before pulling back to $1.4490.
Gold surged to a fresh 28-year high of more than $800 an ounce.
The fall of the dollar also helped to push crude oil above $95.50 a barrel in London.
In Ireland, this helped Tullow, which gained 2.67 per cent yesterday. - (Financial Times Service/Bloomberg)
