Dow roller-coaster sparks fears of world-wide crash

Fears of another stock market crash swept through the City last night after a second day of wild gyrations on Wall Street prepared the ground for another nervous session in London today. Shares suffered their largest fall since last summer's Tory leadership challenge, with the FT-SE 100 index taking its lead from Wall Street's 161-point fall on Monday to close at its lowest level this year.

After the close of the London market, shares tumbled in New York last night, prompting fears that the bull market of the last two years was heading for a crash-landing. The FT-SE 100 had already closed 66 points lower at 3,632.3, more than 200 points lower than the high point it reached in April. The index spent the day in negative territory, recording an 85.7-point decline by lunchtime and never rising higher than a 45-point fall.

Dealers are braced for further declines today following a second consecutive day of extreme volatility in New York. After trading closed in London, the Dow fell at one point by 166 points, outstripping Monday's collapse, before regaining almost all the lost ground and then tumbling again.

Before the lunchtime plunge, the Dow's early calm was attributed to relatively encouraging economic news from the US government, including a modest 0.1 per cent increase in consumer prices in June, while industrial production posted a solid 0.5 per cent gain in the same period.

But the concerns that triggered a massive 161-point sell-off on the Dow on Monday quickly resurfaced. They included disappointing earnings in the technology sector, the underlying rise in interest rates as well as evidence of a selling trend from the influential mutual funds.

The gyrations reinforced fears that Wall Street may be heading for a bear market after its record two-year ascent. But some analysts continued to caution against panic. "I think that the complexion of the market has clearly changed," Michael Metz, the chief investment analyst at Oppenheimer, said. "But I'm not sure that we are in a crash scenario."

The markets were especially anxious to see the quarterly results of Intel, due to be released late last night after the close.

Although most analysts expected Intel's figures to be relatively positive, it was feared that any sign of disappointment in them could further fuel the pandemonium.

It is believed a full-blown crash is less likely since the introduction of trading curb mechanisms in New York in the wake of "Black Monday" in October 1987 when the Dow slid a wrenching 500 points in just one session. The provisions, known as "collars" or "circuit-breakers" are designed to ensure that cascading losses such as those that occurred on that day cannot happen again.

The trading curbs are triggered whenever the market moves more than 50 points one way or another. Programme trades, that can lead to very large movements in the index, are only allowed to resume whenever a tick occurs in the opposite direction of the dominant trend, whether buying or selling. A 250-point drop in the Dow leads to a suspension of all trading for one hour, while a drop of 400 points mandates a halt in trading of two hours.

Market-watchers were divided over the seriousness of Wall Street's correction for other markets. One analyst in London said: "This has been waiting to happen. Wall Street has been overvalued for a while and while the two markets have become decoupled to an extent the bigger the fall in the Dow the more coupled we will become."

Technical analysts said the signs of a big correction had been clear for months. The ratio of shares rising to those falling had fallen sharply in June, normally a sign an index's rise was running out of steam.

In recent months there has also been a marked outperformance by smaller companies, often a sign of a maturing bull market as investors look ever further beyond blue-chip shares for value. In the first six months of the year the FT-SE Small Cap index rose 15 per cent, compared with a flat FT-SE 100.

Comment, page 17

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Compliance Assistant

£13000 per annum: Recruitment Genius: This Pension Specialist was established ...

Ashdown Group: Market Research Executive

£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

Recruitment Genius: Technical Report Writer

£25000 - £35000 per annum: Recruitment Genius: A Technical Report Writer is re...

MBDA UK Ltd: Indirect Procurement Category Manager

Competitive salary & benefits!: MBDA UK Ltd: MBDA UK LTD Indirect Procurement...

Day In a Page

Isis hostage crisis: Militant group stands strong as its numerous enemies fail to find a common plan to defeat it

Isis stands strong as its numerous enemies fail to find a common plan to defeat it

The jihadis are being squeezed militarily and economically, but there is no sign of an implosion, says Patrick Cockburn
Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action

Virtual reality: Seeing is believing

Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action
Homeless Veterans appeal: MP says Coalition ‘not doing enough’

Homeless Veterans appeal

MP says Coalition ‘not doing enough’ to help
Larry David, Steve Coogan and other comedians share stories of depression in new documentary

Comedians share stories of depression

The director of the new documentary, Kevin Pollak, tells Jessica Barrett how he got them to talk
Has The Archers lost the plot with it's spicy storylines?

Has The Archers lost the plot?

A growing number of listeners are voicing their discontent over the rural soap's spicy storylines; so loudly that even the BBC's director-general seems worried, says Simon Kelner
English Heritage adds 14 post-war office buildings to its protected lists

14 office buildings added to protected lists

Christopher Beanland explores the underrated appeal of these palaces of pen-pushing
Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Scientists unearthed the cranial fragments from Manot Cave in West Galilee
World War Z author Max Brooks honours WW1's Harlem Hellfighters in new graphic novel

Max Brooks honours Harlem Hellfighters

The author talks about race, legacy and his Will Smith film option to Tim Walker
Why the league system no longer measures up

League system no longer measures up

Jon Coles, former head of standards at the Department of Education, used to be in charge of school performance rankings. He explains how he would reform the system
Valentine's Day cards: 5 best online card shops

Don't leave it to the petrol station: The best online card shops for Valentine's Day

Can't find a card you like on the high street? Try one of these sites for individual, personalised options, whatever your taste
Diego Costa: Devil in blue who upsets defences is a reminder of what Liverpool have lost

Devil in blue Costa is a reminder of what Liverpool have lost

The Reds are desperately missing Luis Suarez, says Ian Herbert
Ashley Giles: 'I'll watch England – but not as a fan'

Ashley Giles: 'I'll watch England – but not as a fan'

Former one-day coach says he will ‘observe’ their World Cup games – but ‘won’t be jumping up and down’
Greece elections: In times like these, the EU has far more dangerous adversaries than Syriza

Greece elections

In times like these, the EU has far more dangerous adversaries than Syriza, says Patrick Cockburn
Holocaust Memorial Day: Nazi victims remembered as spectre of prejudice reappears

Holocaust Memorial Day

Nazi victims remembered as spectre of prejudice reappears over Europe
Fortitude and the Arctic attraction: Our fascination with the last great wilderness

Magnetic north

The Arctic has always exerted a pull, from Greek myth to new thriller Fortitude. Gerard Gilbert considers what's behind our fascination with the last great wilderness