Wave of selling sends global equities reeling for the third time in a week

Morgan Stanley's veteran market strategist, Barton Biggs, predicts a powerful rally

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Stock markets in New York and London sank to new four-year lows yesterday, dragged down by a fresh wave of profit warnings, uncertainty over the US military build-up in the Gulf, and negative comments from the US Federal Reserve Board's chairman, Alan Greenspan.

The benchmark Dow Jones index fell 383 points, or 4.4 per cent, to end at 8,376.2. In London, the FTSE 100 index closed down 3.5 per cent at 4,556.9, its lowest level since June 1997 ­ the dawn of the Asia crisis ­ after a sell-off in which trading volumes hit their highest level this year.

The Nasdaq slid below the psychological 1,500 level, while the Standard & Poor's 500 fell below 1,000. Bourses in continental Europe also slumped, with Germany's Dax closing below the key 4,000 level. Earlier, markets in Asia also sank.

Since their close the day before last week's attacks, the FTSE 100 has fallen 9.7 per cent, and the Dow and Nasdaq have declined more than 10 per cent.

In the US, media, financial and airline stocks continued the retreat seen each day since Wall Street resumed trading on Monday. The airlines American West Holdings and US Airways fell more than 20 per cent, while Northwest was off almost 9 per cent Walt Disney was closed down 8 per cent at a six-and-a-half year low. It earlier bought back its own stock, helping to arrest a 16 per cent fall. Morgan Stanley and Merrill Lynch, the investment banks, were among a host of brokerage companies that suffered less severe declines in their stock prices.

Investors overlooked an upbeat assessment from Mr Greenspan regarding the longer-term prospects for the US economy, choosing instead to focus on his comments that last week's terrorist atrocities would have a significant short-term economic impact and that the US economy had since ground to a halt.

There was also downward pressure from traders seeking to close positions in futures and stock options ahead of their quarterly expiry on Friday.

Profit warnings came thick and fast from around the globe. In the US, Tribune, the publisher, and Rayovac, a battery maker, became the latest corporates to guide down earnings forecasts. In Europe, Swiss Re, the reinsurer, fell almost 7 per cent as it disclosed its liabilities in relation to the terrorist attacks. LVMH, the French luxury goods maker, warned of falling demand while Honda, the Japanese car maker, indicated it was reviewing its investment in the US.

The grim corporate news overshadowed comments from some analysts that equities appeared heavily oversold. Barton Biggs, the chief market strategist at Morgan Stanley, said several blue-chip stocks were looking capable of delivering rallies of up to 60 per cent. "I think we're getting very close to some kind of selling climax," Mr Biggs told Bloomberg Television. "My advice is that all panics and crises are basically the same in terms of the way the market reacts to them. The market reacts to greed and fear, and we're far along in the fear stage. We're going to have a powerful rally."

Mr Biggs said beleaguered technology stocks such as Cisco Systems and Nortel Networks could double in value. Before last week Mr Biggs was among Wall Street's most vocal bears.

Fears of global recession led to a fall in the price of crude oil, and even safe-haven US government bonds declined on profit taking, following their recent rally that had seen short-term bond yields sink to new lows. Even the price of gold, regarded as one of the safest of investments, slid.