Shares slide as world nervously awaits Wall Street reopening

Stock markets fell sharply across Europe yesterday as dealers braced themselves for the reopening of Wall Street on Monday and international tension mounted over the reprisals President George Bush will stage for the terrorist attacks on America.

London failed to take the lead of Tokyo, where the Nikkei bounced back overnight to close above 10,000 points. The FTSE 100 index gave up virtually all its gains of the previous two days, sliding by 4 per cent to close 187.9 points down at 4755.7 ­ close to its three-year lows. Leading European indices fell by similar degrees.

Meanwhile, the price of oil and gold ­ seen as a safe haven at times of heightened international tension ­ rose while the dollar fell to a six-month low against the euro of 92.11 cents.

Although a handful of Wall Street gurus are predicting that the Dow Jones will stage a patriotic rally on Monday, when share trading resumes after a four-day suspension, the consensus is the US market will open at least 400 points, or five per cent, lower. Some equity strategists believe the fall may be as steep as 10 per cent.

There was a glimmer of good news for the US economy yesterday. Department of Commerce figures showed a steady rise in retail sales last month. But many commentators believe that consumer confidence, along with that on Wall Street, has been sapped by the shocking assault on the heart of America's financial centre using hijacked passenger airliners.

"I think a good part of the Wall Street community is emotionally spent," said the head of one New York investment firm.

US regulators and the federal government are drawing up contingency measures to support the resumption of share trading and prevent a sudden rout.

Among the measures under consideration are an easing of restrictions on company share buybacks ­ last used in the wake of the 1987 stock market crash ­ and an easing of margin requirements so investors do not need to sell holdings to cover their positions should the market begin to slide.

Meanwhile, the Federal Reserve Board said it was continuing to pump billions of dollars into the banking system to ensure liquidity and prevent a credit crunch. There is also speculation that the Fed will come to the aid of the markets with an interest rate cut of half a percentage point.

The Bank of England also indicated it stood ready to cut rates if consumer confidence faltered. Sushil Wadhwani, the leading dove on the Bank's Monetary Policy Committee, told a conference in Helsinki: "The tragic events of the week obviously increase the near-term risks to the global economy. If these events did appear to lead to a significant deterioration in consumer confidence, monetary policy can reasonably be expected to respond."

IG Index, the spread-betting firm, said it expected Wall Street to open at around 9,200 points ­ 5 per cent down on its closing level last Monday night of 9605.51. Cantor Index, owned by Cantor Fitzgerald, one of the brokers worst hit by the attack on the World Trade Centre, said it expected the Dow to open at between 9,190 and 9,210.

"The market view is that it will take a long time to turn the US economy around," said David Buik of Cantor Index. "This differs from our view, which is that the resolve of the American people is strong. We see a tremendous resolve to battle on."

Merrill Lynch's European equity strategist, Khuram Chaudhry said: "Given that the US is likely to lead the rest of the markets and that Europe today was down by 4 to 5 per cent, I wouldn't be surprised to see a 5 to 10 per cent drop on Wall Street in the short term, although a lot of that stems from a knee-jerk reaction to the political situation."

Despite more soothing words from Opec that it remained committed to stable prices and meeting demand, oil prices jumped 5 per cent, or $1.27 a barrel, to $29.64. Gold, meanwhile, shot up from a low of $283 an ounce to $288.50 after Afghanistan's ruling Taliban warned of revenge "by other means" if it was attacked for harbouring Osama bin Laden, the prime suspect for the US attacks.

"The mood obviously is grim," said Peter Cardillo, director of Research at Westfalia Investments. "It is not going to be easy to go back to the Wall Street area and actually see a war zone."