Dow's day of turmoil unsettles London

THE AMERICAN stock markets gave investors a rollercoaster ride yesterday, staging a series of large-scale declines and recoveries before closing up on the day. But few analysts believe the equity markets have seen the end of their current period of volatility, and the selling may not yet have run its course.

The Dow Jones Industrial Average closed up 59.47 points at 8,546.78. But the market had zig-zagged dramatically throughout the day: the Dow opened up 26 points, quickly slid 75 points and then recovered to stand about 80 points up at midday.

In the afternoon it plunged by over 100 points, and at one point was more than 10 per cent below the 9,337.97 record reached just three weeks ago, before staging a dramatic recovery in the last hour of trading.

However, the bounce came too late to help European stock markets, which had a nervous day's trading. In London, the FTSE 100 closed 103.6 points down at 5,632.5, having at one point been 163 points lower.

The German DAX index ended 2.15 per cent lower, while the French CAC- 40 index closed down 1.78 per cent.

For once, Asian markets seemed largely immune to the market fluctuations in the US, and there was even a glimmer of light in Japan, where the stock market registered only a minuscule loss and the battered yen managed a modest recovery.

The new government gave the go-ahead for a bank rescue plan by providing bridging finance and confirmed that the highest rate of income tax was being cut from 65 to 50 per cent.

In Hong Kong, where the link to American markets is reinforced by the currency's tie to the US dollar, the blue-chip Hang Seng index only declined 1.5 per cent. "I think the market has held extremely well considering," said Adrian Faure of Merrill Lynch in Hong Kong.

City experts said there was no obvious trigger for Tuesday's fall in the Dow Jones - the third-biggest one-day points loss ever. Strategists said dealers were nervous about a range of issues, including the White House scandals, Asia and US corporate earnings.

James Montier, global strategist at BT Alex.Brown, said: "Anything that causes uncertainty is a problem when markets are so stretched."

Some investors in the US saw the decline as a buying opportunity, and analysts' comments helped to buttress the market. Goldman Sachs strategist Abby Joseph Cohen, a well-known bull, said she remained confident in the market and reiterated her 1998 target of 9,300 for the Dow.

Other US stock market measures were also up. The technology-intensive Nasdaq composite ended up 2.33 at 1,787.97, and the broadly-based S&P 500 was up 9.32 at 1,081.44.

However, analysts predicted that the markets would remain jittery over the near to medium term. Mr Montier said: "This could develop into a 15 per cent correction over the next month or so, although that is not a crash by any standards."

Declining issues outnumbered rising stocks by eight to six on the New York Stock Exchange, reflecting the broader concerns about the prospects for corporate profits for the rest of the year.

There was also a bout of unsettling rumours from China, where it was reported that the local currency was trading at a four-year low against the US dollar on the black market. This suggests that investors are preparing for a devaluation of the yuan.