Markets flattered to deceive yesterday as early gains prompted by healthy Thanksgiving holiday sales in the United States and strong overnight markets in Asia were offset by a resurgence in concerns about the state of the global economy.
Dealers said the declines that hit European markets after US indices opened yesterday indicate how volatile investor sentiment is at the moment.
"We are certainly not out of the woods yet," said one Dublin trader. "There is a lot of nervousness out there."
National benchmarks dropped in 12 of the 18 western European markets. The Iseq index of Irish shares for once outperformed its European peers. The Iseq rose as much as 2.4 per cent before falling back to close just under half a per cent lower.
The early gains in the Dublin market came on the back of a gain of more than 4 per cent on Friday. However, that followed losses of more than €8 billion between Monday and Thursday of last week. The Iseq is down 30 per cent this year.
Britain's FTSE 100 closed down 1.3 per cent yesterday, while France's CAC 40 fell 1.1 per cent and Germany's DAX slipped 0.6 per cent. Earlier Asian markets had climbed strongly.
The banks were again the main contributors to the declines across Europe, despite news that Richard Branson's Virgin Group had been named as the preferred bidder for ailing UK bank Northern Rock.
"It doesn't take much to knock things down at the moment," said another Dublin dealer. "It's all about the bigger global picture."
Responding to severe pressure on the cost of short-term lending, the New York Federal Reserve said it planned to conduct a series of term repurchase agreements extending into the new year, beginning with an $8 billion (€5.4 billion) injection this week.
British bank HSBC became the latest financial group to reveal the impact of recent liquidity problems when it said it would bail out two structured investment vehicles (SIVs), providing them with up to $35 billion in financing. This news added to the woes of financial stocks that have yet to recover from a series of similar revelations in recent weeks.
Rumours prompted by a CNBC report that Citigroup was planning a series of "massive" lay-offs also didn't help sentiment.
Closer to home, a European construction report from Euroconstruct that slashed Ireland's forecasts for growth in the industry from 0.2 per cent to a decline of 6.5 per cent next year was bad news for the State's raft of homebuilders and construction-related stocks. John Sheehan, head of equities at NCB, said the reduction was the single biggest revision among European countries. - (Additional reporting: Bloomberg, Financial Times service.)
