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
ebooks
ebooksA celebration of British elections
  • Get to the point
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

Ashdown Group: Editor-in-chief - Financial Services - City, London

£60000 - £70000 per annum + benefits : Ashdown Group: A highly successful, glo...

Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Guru Careers: Management Accountant

£27 - 35k + Bonus + Benefits: Guru Careers: A Management Accountant is needed ...

Guru Careers: Project Manager / Business Analyst

£40-50k + Benefits.: Guru Careers: A Project Manager / Business Analyst is nee...

Day In a Page

General Election 2015: ‘We will not sit down with Nicola Sturgeon’, says Ed Balls

'We will not sit down with Nicola Sturgeon'

In an exclusive interview, Ed Balls says he won't negotiate his first Budget with SNP MPs - even if Labour need their votes to secure its passage
VE Day 70th anniversary: How ordinary Britons celebrated the end of war in Europe

How ordinary Britons celebrated VE Day

Our perception of VE Day usually involves crowds of giddy Britons casting off the shackles of war with gay abandon. The truth was more nuanced
They came in with William Caxton's printing press, but typefaces still matter in the digital age

Typefaces still matter in the digital age

A new typeface once took years to create, now thousands are available at the click of a drop-down menu. So why do most of us still rely on the old classics, asks Meg Carter?
Discovery of 'missing link' between the two main life-forms on Earth could explain evolution of animals, say scientists

'Missing link' between Earth's two life-forms found

New microbial species tells us something about our dark past, say scientists
The Pan Am Experience is a 'flight' back to the 1970s that never takes off - at least, not literally

Pan Am Experience: A 'flight' back to the 70s

Tim Walker checks in and checks out a four-hour journey with a difference
Humans aren't alone in indulging in politics - it's everywhere in the animal world

Humans aren't alone in indulging in politics

Voting, mutual back-scratching, coups and charismatic leaders - it's everywhere in the animal world
Ronald McDonald the muse? Why Banksy, Ron English and Keith Coventry are lovin' Maccy D's

Ronald McDonald the muse

A new wave of artists is taking inspiration from the fast food chain
13 best picnic blankets

13 best picnic blankets

Dine al fresco without the grass stains and damp bottoms with something from our pick of picnic rugs
General Election 2015: Ed Miliband's unlikely journey from hapless geek to heart-throb

Miliband's unlikely journey from hapless geek to heart-throb

He was meant to be Labour's biggest handicap - but has become almost an asset
General Election 2015: A guide to the smaller parties, from the the National Health Action Party to the Church of the Militant Elvis Party

On the margins

From Militant Elvis to Women's Equality: a guide to the underdogs standing in the election
Amr Darrag: Ex-Muslim Brotherhood minister in exile still believes Egypt's military regime can be replaced with 'moderate' Islamic rule

'This is the battle of young Egypt for the future of our country'

Ex-Muslim Brotherhood minister Amr Darrag still believes the opposition can rid Egypt of its military regime and replace it with 'moderate' Islamic rule, he tells Robert Fisk
Why patients must rely less on doctors: Improving our own health is the 'blockbuster drug of the century'

Why patients must rely less on doctors

Improving our own health is the 'blockbuster drug of the century'
Sarah Lucas is the perfect artist to represent Britain at the Venice Biennale

Flesh in Venice

Sarah Lucas has filled the British pavilion at the Venice Biennale with slinky cats and casts of her female friends' private parts. It makes you proud to be a woman, says Karen Wright
11 best anti-ageing day creams

11 best anti-ageing day creams

Slow down the ageing process with one of these high-performance, hardworking anti-agers
Juventus 2 Real Madrid 1: Five things we learnt, including Iker Casillas is past it and Carlos Tevez remains effective

Juventus vs Real Madrid

Five things we learnt from the Italian's Champions League first leg win over the Spanish giants