European rally fails to halt Dublin slide

The Irish stock market missed out on a late European rally, closing lower for the 17th consecutive session yesterday, as markets around the globe began to realise it is now highly unlikely that war in the Gulf can be avoided.

The ISEQ index lost 0.9 per cent of its value as fears of war in Iraq were fuelled by President Bush's State of the Union address on Tuesday evening. Bush promised to deliver new intelligence on Iraq's alleged arms programmes and vowed to use full military force to disarm Iraq if necessary.

"It now seems clear that the US is going to go to war. The only question is the actual date," said one Dublin dealer, adding there was a growing expectation that the war would start before March 1st.

European shares fell sharply in early trading in response to Bush's belligerent speech as investors fretted over the implications for oil prices of a long, drawn-out war and the longer-term consequences for international relations if the US launches an attack without widespread international approval.

In New York, stock markets had a volatile session, see-sawing from negative into positive territory and back again as the heightened fears of a military confrontation, a softer dollar and stocks losses sent investors scurrying into gold, which hit its firmest level in more than six years.

"It's one word, Iraq," said Mr Hugh Johnson, chief investment officer at First Albany Corp in New York. "Investors are backing away from the market because we seem closer to a war and it may lead to a further rise in the price of oil and real economic problems, and they are really worried about US chest-thumping, unilateral policy that could lead to further problems."

The Dow Jones index of leading shares closed up just 0.3 per cent at 8,110.71 while the Nasdaq gained 15.93 points to close up 1.2 per cent at 1,358.11.

Financial markets were also awaiting the end of the Federal Reserve's policy-setting meeting in the afternoon although it left US interest rates unchanged.

"Oil price premiums and other aspects of geopolitical risks have reportedly fostered continued restraint on spending and hiring by businesses," the Federal Open Market Committee said in a statement.

"However, the committee believes that as those risks lift, as most analysts expect, the accommodative stance of monetary policy, coupled with ongoing growth in productivity, will provide support to an improving economic climate over time."

Policymakers agreed to keep the economic growth and inflation outlook neutral, meaning they had no particular leaning towards cutting or raising rates in the foreseeable future.

In Dublin, most of the leading stocks closed lower while tourism-sensitive stocks like Jurys Doyle Hotel Group and Irish Continental Group were hit.

But a late surge in drugs and oil stocks and a Wall Street off its lows helped European shares stage a late recovery last night although sentiment remained nervous. In London, the FTSE 100 ended 0.2 per cent weaker but off earlier lows. - (Additional reporting by Reuters)