Roller-coaster Dow leaves markets braced for turmoil

Dealers are bracing themselves for a day of turmoil on world stock markets after shares took a nerve-jangling tumble on Wall Street yesterday with investors continued to worry about continuing strength in the United States economy and the spectre of a long run of rising interest rates.

By the close last night, the Dow Jones Industrial Average was off by a dizzying 157.11 points, or 2.3 per cent, at 6,583.48. The fall, which computerised trading curbs failed to halt, came on the heels of the index's 140-point loss last Thursday.

While some analysts continued to argue that the return of the bear to the Wall Street represented no more than the correction that many had been expected, others were sounding alarm bells. Any slippage beneath the psychologically-important 6,600 level could instil more generalised fears, if not investor panic.

The story was similar across the markets. The technology-heavy Nasdaq exchange was also hurting badly yesterday - it was off more than 15 points at midday. Dealers are bracing themselves for volatile trading today after shares plunged again on Wall Street yesterday. Equities are expected to take their cue from a US market that returned from the shorter American Easter holiday as nervously as it had entered the break.

After a 140-point fall last Thursday in New York, the Dow Jones index fell sharply in early trading yesterday as dealers banked on another rise in American interest rates following last week's quarter-point increase. The Dow was trading 107.64 points off at 6,632.95 in midday trading, having been 140.8 down at mid-morning.

Shares were especially nervous ahead of economic data this week that could shape perceptions about inflation, interest rates and the stock market's future health. Later today the March survey of manufacturing conditions from the National Association of Purchasing Management will be published, while on Friday the Labor Department releases the March employment report.

The slide resumed immediately after the opening bell yesterday, leading to an early activation of computerised trading curbs on the New York Stock Exchange. It was a similar story of pain elsewhere. The technology-heavy Nasdaq exchange was also hurting badly yesterday - off 28 at 1,221 by the close. Nor was there much help forthcoming from the bond market, where the yield on the benchmark 30-year Treasury bond, after steadying briefly in early trading, began to climb again. At last Thursday's close, the yield was at 7.08 per cent, its highest level since last September.

Once bond yields break through the 7 per cent barrier, investors often begin looking towards the bond market and away from equities as the best place for their dollars.

Most analysts continued to attribute the onset of market turbulence to last week's Federal Reserve decision to raise short-term interest rates by a quarter-point. There is still concern that further increases may be around the corner.

Fuelling that worry was additional data yesterday pointing to an overly healthy US economy. The Commerce Department reported that Americans' personal income jumped 0.9 per cent in February, the largest gain in nine months.

While spending grew by a much more modest 0.3 per cent - the smallest gain since for six months - it came after a full 1 per cent surge in January.

"The data will keep the market on the defensive," said Peter Cardillo of Westfalia Investments.