Dow recovers but nervousness persists

WALL Street has broken out of a week long losing streak, recovering trade ground strongly in late trade yesterday after a sharp, early fall.

In spite of better than expected inflation figures, heavy selling in the morning session drove the Dow Jones Index of leading US stocks, down over 70 points. But the index recovered to close at 5487.07, up 1.09 points on the day, but still down 195 points since Monday's opening.

The New York Stock Exchange twice imposed its automatic curbs on trading - for the 39th time this, year - after a morning bout of computer led selling. Yesterday was one of the heaviest trading days recorded on the NYSE in recent years.

US markets are expected to remain nervous today as figures for US retail sales and consumer prices are due to be published.

Wall Street's continued weakness in early trading caused major European stock markets to suffer setbacks, the losses ranging from 0.6 per cent in London to 1.02 per cent on the Paris Bourse.

In Dublin the ISEQ index of Irish shares fell by 8.65 points to 2413.32.

London dealers said the market was worried about Wall Street's continued weakness and the British political situation, with the Conservatives in danger of having their House of Commons majority reduced to one by a by election yesterday.

The US Labour Department yesterday released wholesale prices data showing a jump in March as higher energy and food costs gave inflation a hard nudge and upset the stock market.

The department said the Producer Price Index rose 0.5 per cent, matching the increase last December, and compared with a 0.2 per cent decline in February.

With the volatile food and energy sectors excluded, inflation was much weaker with the so called core rate rising only 0.1 per cent, identical with February.

Wall Street had estimated that overall producer prices would rise 0.4 per cent and the core rate would increase 0.2 per cent.

Some analysts said the new figures showed inflation may be beginning to stir after years of benign behaviour. Higher inflation would put pressure on the Federal Reserve to increase interest rates. Fears of higher interest rates after last week's employment figure showed the US economy was performing better that expected triggered this week's weakness in US shares.

"The genie may be out of the bottle," said Mr David Jones of Aubrey G. Lanston and Co. "I don't think there will be a big surge, but the best performance on inflation is clearly behind us."

Others analysts were cautious about predicting a return of inflation, pointing out that energy prices tend to fluctuate wildly.

"The energy jump is a temporary one," said Mr Michael Moran of Daiwa Securities America. "It is a very volatile number."

Concern centred on commodity prices. The price of crude oil is at a 4 1/2 year high, with the benchmark Brent crude for May delivery up 54 cents a barrel at $22.57 (£14.28) by late yesterday afternoon.

Higher grain prices, as a result of dry weather, have also helped take the Federal Reserve's favoured commodity price index, from the Commodity Research Bureau, to its highest level for eight years.