Greenspan adds salt to market wounds


Most US stocks erased gains at the tail end of a seesaw session last night after comments from US Federal Reserve chairman Mr Alan Greenspan reawakened fears that demand would not meet an upswing in production.

Mr Greenspan said a big swing in inventory investment by businesses was stimulating production dramatically. "But it's a one-shot affair," he said, "and the question is: 'Will final demand hold up continued growth, subsequent to the final dissipation of the positive effects coming from the swing in inventory investment?' "

Mr Greenspan was speaking at a panel discussion of central bankers at the International Monetary Conference in Montreal.

News of possible trading abuses at Nasdaq share dealer Knight Trading Group earlier took their toll on investor confidence.

"It's like a perfect storm in stocks," said Mr Philip Ruffat, senior vice-president at Mizuho Securities USA. "You have high valuations that are not being supported by visibility from senior management; you have fraud and deceit accounting. Right now you have the visibility of a brick."

Knight Trading Group denied allegations that it made improper stock trades during the boom in technology stocks, but its shares fell sharply. The stock initially fell more than 30 per cent after the Wall Street Journal reported that regulators were probing whether Knight traders placed their own orders for stock to take advantage of the anticipated change in price before carrying out customer orders - a practice known as front-running.

The Dow Jones Industrial Average was down 21.95 points, or 0.23 per cent, at 9,687.84, after earlier falling as low as 9,592.79 and slipping 2.2 per cent on Monday. The broader Standard & Poor's 500 Index ended the day almost unchanged at 1,040.63 down just 0.05 points. The technology-laden Nasdaq Composite Index touched a low for the day of 1,548.31 following a 3.3 per cent slide on Monday, before rising 1 per cent or 15.56 points to close at 1,578.12.

European shares were mired at eight-month lows as Wall Street succumbed to renewed worries about US corporate governance.

The rout in Europe was broad-based, led by heavyweights such as Finnish mobile phone giant Nokia, Dutch bank ING and French drug manufacturer Sanofi-Synthelabo.

The FTSE Eurotop 300 index finished down 1.9 per cent at 1,144.36, its lowest close since mid-October, as decliners beat advancers by about five-to-one.

The narrower Euro Stoxx 50 index of Europe's 50 biggest companies tumbled 3.6 per cent.

"We have a sell-off of basically everything today. Nothing is resisting really," said SG Securities European equity strategist Alain Bokobza. Volumes were light, however, with London closed for a public holiday.