The Dow Jones Industrial Average suffered its biggest point drop on Friday, but Wall Street veterans are refusing to call it a crash.
The technology-heavy Nasdaq index, which has become a thermometer of the health of the "new economy", was also in severe trouble, diving almost 10 per cent on Friday and more than 22 per cent over the week. The slump represents the worst trading period in its 29-year history.
Markets across Europe were affected by the downward trend, leaving the FT-SE 100, France's CAC 40 and Germany's Dax indices all licking deep wounds. The Dow, which at one stage was 720 points down, closed 618 points lower at 10,305.
The markets had been on the slide for several days, but on Friday frantic investors sent them into freefall. The trigger for the sell-off was the news that the core level of US inflation had undergone the biggest hike in more than five years.
This was exactly the news everyone had feared, knowing that Federal Reserve chief Alan Greenspan was on the look-out for signs the economy was cooling. Since the consumer price index and the previous week's unemployment figures showed no evidence of this, Wall Street was gripped by fear of an interest rate rise.
Market wisdom holds that Mr Greenspan may now consider raising rates next May by a half, rather than a quarter, of 1 per cent. As a result, the Dow's big players, like American Express and JP Morgan, were heavy fallers.
Analysts will also be thinking hard about the underlying causes. Their conclusions will be crucial on Monday, when traders return to the scene of the crime.Reuse content