City panic fuelled by profit warnings

Market Turmoil: Investors finally give up on the stock market as FTSE suffers worst fall in 13 years
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The Independent Online

Invensys led a raft of British companies warning yesterday that the US economic slowdown would tear into profits, sparking the FTSE 100's biggest daily fall in 13 years.

Invensys led a raft of British companies warning yesterday that the US economic slowdown would tear into profits, sparking the FTSE 100's biggest daily fall in 13 years.

The controls and automation group, which delivered a catastrophic profits warning in September, saw its shares plunge 10 per cent to a new low of 116.25p after it said conditions in the US has deteriorated further.

It was joined by BPB, the plasterboard group, Laird, an electronics company, and Avon Rubber, in warning that profits would be hurt by falling American business.

The FTSE 100 dropped 225.9 points to close at 5,314.8, as the morning chorus of profit warnings was compounded by a plunge on Wall Street in the afternoon.

Bob Semple, equity strategist at Deutsche Bank, said: "It was bound to happen. We will see more of this. The US economy is in a fairly weak position. If you're brave enough to invest these days, our advice is that you keep yourself close to the UK."

Invensys said that industrial and consumer confidence had steadily weakened in the US over the last four months. It said it would lay-off a further 2,000 workers globally, in a bid to cut costs, on top of the 3,000 job losses announced in September.

Allen Yurko, the company's chief executive, said: "Like every other company in our industry, we are watching the US economy closely. At this point it is not possible to be sure of the duration of the current downturn."

Invensys said there was continued softness in US housebuilding and orders for machinery had not improved since the first half. This meant that second-half profits, for the year to 31 March, would come in below the first six months.

Analysts cut forecasts for both the current year and 2002. The news also cast doubt on the company's plans to spin off its power systems business in the US this year.

Ian Arnott, chief executive of Laird Group, said that a slowdown in US orders had started in December and accelerated in January and February. The company, which saw its shares fall 27 per cent to 197.5p, supplies electromagnetic shielding components for mobile phones and computers.

"We have been hit by a double whammy," Mr Arnott said. "There is a economic downturn and our customers are destocking as they find themselves with too much stock."

Richard Jeffrey, an economist at ING Charterhouse, said that investors should not be fooled into thinking that businesses only active in the UK were a safe haven. "Nobody will escape," he said. "The UK economy has got to slow down too. The Bank of England cut interest rates in 1998 and early 1999 so that we didn't fall into recession then. This time, the economy cannot be bailed out by adjusting demand."

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