Market marks time as investors take to the sidelines

The Irish stock market ended little changed after a day when investors generally sought the comfort of the sidelines but sentiment turned negative in late trade as European markets closed sharply lower.

Shares in London dived by 1.63 per cent, Paris plunged by 2.53 per cent while Frankfurt shed 1.88 per cent following further turmoil in the Far East, including concern that continued yen weakness could spark further Asian currency devaluations and stock market falls.

Wall Street succumbed to the Asian jitters and cast a further pall over European markets with a limp opening performance. The Dow eventually closed 23 points lower at 8,574.

"The question is can western markets continue to ignore the pressure coming from the East?" said Mr Peter Knapton, managing director at Legal and General in London. "The world has become a little more nervous."

In Dublin, the ISEQ index of shares closed 5.21 points or 0.1 per cent lower in a day marked by very low volume. Traders said the Irish market would have fallen faster and more sharply but for the lack of activity. Only AIB, Bank of Ireland and Irish Life saw any decent-sized trading.

AIB, still riding high on the back of last week's strong interim results, ended 5p higher at a record closing level of £11.55. Bank of Ireland, however, shed 3p to finish at £14.00 while Irish Life gained 13p to 663p.

On the foreign exchanges, the dollar rose to within a whisker of 146.75 yen, its strongest level this year, and close to the level that triggered the surprise joint intervention by the US Federal Reserve and the Bank of Japan in June.

Economists fear that the yen, currently in territory unseen since August 1990, will weaken further - some are forecasting a level of 160 yen to the dollar.

Dealers attributed the yen's weakness to concern over the pace of reform in Japan and news that unlisted Japanese copier maker Mita Industries was filing for court protection from creditors. Analysts said Mita's action raised questions about the solvency of the Japanese corporate sector and was a reminder of the perilous state of the country's economy.

For the yen to make a solid recovery, Japan will have to take more serious steps toward resolving its mountain of bad loans, economists say. The country has at least $600 billion in bad loans, with some estimating the number as high as $1 trillion.

Meanwhile, the Chinese central bank had to intervene again to support the yuan, at least the third such operation this month alone, as talk of devaluation of both it and the Hong Kong dollar gathered pace. Taiwan's central bank also issued a one-page statement reserving the right to intervene to defend the Taiwan dollar against what it saw as an unjustified depreciation of the local currency to seven-week lows. Analysts fear that a Chinese devaluation could trigger another round of devaluations across the economically depressed region - the Vietnamese government has already announced a 9 per cent devaluation of its currency, the dong. The risk of another shock of that proportion is keeping foreign investors shy of local securities Stock markets in Taiwan, Indonesia, the Phillipines and South Korean fell while Tokyo's Nikkei share index lost almost 1.3 percent and Thai shares hit their lowest level in more than 11 years.

However, Chinese President Jiang Zemin said on Sunday that Beijing was determined to avoid devaluing its currency despite its slowing economy but dealers say the slide in the yen and other Asian currencies has put Chinese exports at a competitive disadvantage, increasing the chances of a devaluation.

China's worst flooding in more than four decades has also heightened fears of a devaluation because of the economic damage caused, brokers say.