European shares fell yesterday, mirroring overnight declines in Asia and following on from the significant losses seen in the US on Friday as concern about slower economic growth again reared its head.
Worries about credit problems, and the health of the US economy in particular, not only put pressure on stocks but also triggered a pullback in the price of oil from the $90 record touched last week. The dollar also rebounded from all-time lows later in the day as investors bet that the currency's recent fall might be overdone.
The Group of Seven finance ministers and central bankers did little to help sentiment at the weekend, revealing that they expect the turmoil in the credit markets to slow economic growth. They failed to intervene in the dollar's decline, going against the expectations of some commentators.
Ireland wasn't immune to the negativity, with €1.8 billion being wiped off the value of the Iseq index, though for once the index performed only slightly worse than its European peers.
The FTSEurofirst 300 index of top European shares fell for its third session, closing down 1.3 per cent at its lowest close since September 26th.
In London the FTSE 100 fell 1 per cent, while in Paris the CAC 40 was down 1.5 per cent. The German DAX ended the day 1.2 per cent lower.
Last Friday, the 20th anniversary of Black Monday, US stocks had their biggest decline in two months as comments from Caterpillar that the housing slump was infecting the wider economy weighed on sentiment.
Yesterday's declines in Europe come after markets had recovered some ground following the panic that gripped investors in August in the wake of the global credit squeeze. The Iseq index of Irish shares has generally been hit worse than its European counterparts as a result of its heavy reliance on financial and construction stocks - combined they account for more than half of the index's share capital. It is currently trading 24 per cent below its February high and lost almost 10 per cent of its value in July and August alone.
"We are again seeing renewed focus on credit issues and concerns that problems in the US housing sector will spill over to the broader economy, and this is clearly having an adverse impact on markets," said Peter Berezin, economist at Goldman Sachs.
The dollar hit a record low in early trade against the euro yesterday as Rodrigo Rato, the outgoing managing director of the International Monetary Fund, warned the dollar could suffer a dramatic fall that would shake confidence in American assets. However, it bounced back as some investors bet its decline may have gone too far, too fast.
By lunchtime in New York, the Dow Jones Industrial Average, which tumbled 4.1 per cent last week, was down another 0.4 per cent. However, by the close of business it had recovered to post a small gain.
Crude oil was trading below $87 a barrel.
- (Additional reporting Reuters/Financial Times service)
