Shares fall 3 per cent as Iseq hits six-month low

The Irish stock market tumbled by more than 3 per cent yesterday as the Iseq fell to its lowest level in six months.

The Irish stock market tumbled by more than 3 per cent yesterday as the Iseq fell to its lowest level in six months.

Worries that rising interest rates would damage economic growth triggered a worldwide sell-off of shares, starting in Asia where Japan's Nikkei index booked its biggest one-day percentage fall in two years.

The weakness extended to European stock markets, and Ireland proved unable to avoid the fallout. Indeed, the Irish market suffered more than most as the Iseq fell below the 7,000 level for the first time since last December while nearly €2.9 billion was wiped off its value.

Among the hardest hit shares were those of AIB, which lost 5.6 per cent, Independent News & Media, which shed 5.2 per cent and Paddy Power, which dropped by 5.6 per cent.

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"Markets are suffering from a massive crisis of confidence," noted one Dublin dealer, although he said that the weakness was being exacerbated by hedge fund activity, which has grown in size and importance in recent years.

"With so many hedge funds now playing the market, when there is a crisis of confidence it accentuates the problem," he said, adding such investors were cutting their exposure and raising the cash balances of their portfolios.

In London, the FTSE fell by 1.8 per cent to record its lowest close since last December as mining and oil stocks in particular were hit, as the value of metals such as gold and copper and crude oil fell sharply.

Meanwhile, German stocks lost 1.9 per cent while French shares finished 2.2 per cent lower as the FTSEurofirst 300 index of top European shares shed 2 per cent to close at a level last seen on November 30th.

US producer price (PPI) data did little to dampen concerns, showing core prices rising more than expected and indicating that rising prices may be working their way through to consumers from producers.

US stocks slipped as the data fuelled fears that the US Federal Reserve would raise interest rates again in June.

In New York, the Dow Jones Industrial Average lost 0.8 per cent while the Nasdaq closed 0.9 per cent down at 2,072.47, as attention switched to the release of US consumer price (CPI) data on Wednesday.

"The PPI...did nothing to relieve investor concerns. It wasn't a truly troublesome number but it was not a helpful number so we need more information and the CPI is the next number to look at," one US fund manager said.

Despite the sharp sell-off in global equity markets in recent weeks, market strategists are still to loathe to believe that we are seeing the start of a bear market.

According to NCB Stockbrokers' equity strategists, the recent downturn is "a medium-term correction".

Typically, this involves a fall of 10 to 15 per cent before markets stabilise.

"Markets are waking up to the reality that interest rates are rising but they are rising from low levels," NCB says. (Additional reporting by Reuters)