On a topsy turvy-day on European markets shares gyrated wildly before rallying to close ahead helped by a US interest rate cut and a better-than-expected - initially at least - reopening on US markets. European markets closed up 3 to 3.5 per cent but traders warned of volatility for some time.
After sharp falls in early trading on concern about the direction Wall Street would take in the afternoon, bourses started to trim their losses around midday helped by the annoucement of the half point interest rate cut by the Federal Reserve about an hour before the US markets were due to open.
When the US opened and fell Europe continued to move ahead. Within an hour of the US opening, with the Dow Jones down over 6 per cent and Nasdaq down just under 6 per cent, European markets were buoyed by what were seen as lower than expected initial falls in the US. One dealer said: "It could have been a rout and we had priced in falls of around 10 per cent so this was good news."
In London the FTSE 100 closed up 143 points, or 3 per cent, at 4898.3, its high for the day. In Paris the CAC was up 2.7 per cent at the close while in Frankfurt the DAX gained 3.5 per cent on the day. The pan-European FTSE Eurotop 300 closed up 0.9 per cent and the DJ Euro Stoxx 50 closed 2.2 per cent ahead. Against the trend the ISEQ in Dublin closed down 2 per cent.
On European markets oil, drug, bank and telecom shares led the rally with tobacco shares also showing good gains. Airlines, hotel, leisure and insurers remained under pressure. The FTSE 100 is now down 4 per cent on its pre-Tuesday 11th levels and down 21 per cent year to date.
The surprise ECB rate cut came after trading closed in Europe but dealers expect the move to help steady market nerves today. In the US, the Fed rate cut and announcements of share buybacks by companies such as Cisco Systems, Pfizer and Morgan Stanley averted a steeper-than-feared fall when trading resumed after the four-day closure. Some European markets were already down 10 per cent since the terrorist attacks last Tuesday and had priced in opening losses of 5 to 10 per cent on Wall Street.
But dealers said it was too early to say if the Fed and ECB rate cuts would be sufficient to stabilise global markets in coming days.
"Wall Street is going to be volatile. We are not out of the woods yet," one dealer said.
Investors have taken some confidence from a research report from Goldman Sachs leading strategist Ms Abby Joseph Cohen. Though she cut her S&P 500 target for 2002 to 1,250-1,400 from 1,550, she said equity prices were attractive at current levels. In a research note she said: "The US economy faces temporary stresses, but is fundamentally sound. The banking system has functioned well through the crisis. We expect economic and profit growth will resume in 2002. Equities are attractively priced, even with adjustments following the tragic events of September 11th. Prior bear market bottoms have typically occurred at levels of 15 per cent to 25 per cent undervaluation."
