Europe's markets in day of turmoil

STOCK markets across Europe endured the most chaotic trading most dealers could remember as speculation about a major realignment of currencies in the exchange rate mechanism caused share prices to see-saw wildly.

The Milan bourse came off worst. As the lira took another severe hammering into the floor of the ERM, Italian share prices, with heavy selling by foreign investors, closed sharply lower.

The all-share MIB closed 5.05 per cent lower at 696, having opened 8.6 per cent lower, helped towards the end of trading by dealers closing out short positions where they had been selling shares they did not possess.

In Stockholm shell-shocked Swedish investors appeared to be too numb to react to a rise in the central bank's marginal lending rate from 20 to 75 per cent. The general market index closed only 0.11 per cent lower after a fall of 2.35 per cent at noon.

Elsewhere among the key European bourses the day ended on a brighter note. In Frankfurt share prices fell by more than 1.5 per cent but managed to recover almost all the lost ground.

The DAX index finished 2.99 points down at 1,584.56 after falling by 7.49 on Tuesday. Dealers said trading was dominated by talk of further interest rate cuts.

In Paris prices were tossed about on a sea of rumours about the health of President Francois Mitterand, an imminent cut in German interest rates and currency realignments. By the close shares showed good gains in conditions described as 'bedlam' by dealers as the CAC 40 index, down 2.7 per cent at one point, rose 1.3 per cent to 1,859.78.

Share prices in Madrid encountered panic selling before also staging a recovery as the general index ended 2.63 lower at 211.25.