Markets lower on interest rate fears

Fears that the Federal Reserve may be forced into an interest rate rise of as much as half a percentage point when it meets in two weeks time drove share prices sharply lower on international stock markets, with the London market suffering its worst one-day loss for a year.

The Irish market, however, was not affected yesterday but dealers expect prices to weaken today as the local market catches up with the international weakness.

European markets had opened weaker, but that weakness was exacerbated when the New York markets opened sharply lower. Fears that tomorrow's payroll figures in the US will trigger a half-point rate by the Fed's policy making committee on May 16th was the main factor behind the sell-off on Wall Street where the Dow Jones fell 250.99 or 2.34 per cent to 10,480.13, and the technology-heavy Nasdaq fell 78.13 or 2.06 per cent to 3707.32.

The pan-European Eurotop index of 300 shares closed one percent lower at 1,646.28 while the narrower Euro Stoxx index of 50 blue chip euro zone shares ended down more than two per cent lower. Both had made substantial gains on Tuesday, buoyed by recoveries in technology issues. Analysts said such volatility is likely to continue in the European markets as strategic investing is pushed aside by reactions to day-to-day events and data.

Analysts cited the weak euro, which fell more than two cents against the dollar to record lows of $0.8887 and concerns over possible interest-rate rises as two factors behind the chopping and changing in the market. While a low euro is good news for euro zone exporters, the speed of its decline is adding to general uncertainty and volatility.

The so-called "new economy" telecommunications, media and technology shares suffered the brunt of the selling on European markets after their rises the previous day.

The three per cent fall in London was led by index heavyweights Vodafone Airtouch and British Telecom. The decline - which wiped some £42 billion sterling from the value of top stocks - was the FTSE 100's biggest points fall since April 20th last year.