Inertia at G7 further depresses share values

Disappointment that the G7 Finance Ministers failed to adopt a clear strategy to address various global economic issues drove share prices sharply lower on world markets and the Irish stock market fell another 2.5 per cent and is now at its lowest level since late 1997.

Instead of the bold, united action they had hoped would emerge from the Washington G7 meeting, markets were left with little more than vague promises and conflicting ideas.

Hopes that the meeting of finance ministers and central bankers might endorse lower interest rates to kick start the world economy were dashed by what many analysts saw as a limp communique issued after the meeting.

In a sentiment shared by many analysts, billionaire financier Mr George Soros described the statement as "a little bit empty."

And with the American stock market still to suffer the sort of losses that European markets have endured in recent weeks, there is a strong view that the markets may have much further to fall before they touch bottom.

That fall is likely to punctuated by periodic selective bargain-hunting, but the prevailing view in the market is that the Dow Jones may have to fall towards the 7000 level before it makes any sustained recovery. Last night as the Dow closed down 58.45 on 7,726.24 that view was reinforced after the president of the New York Federal Reserve, William McDonogh, warned that the current financial, crisis is the worst since World War Two and could get worse.

"I believe we are in the most serious financial crisis since World War II and one that has the propensity to get worse rather than better unless we collectively do something about it," Mr McDonough said.

He said part of the problem is that the countries in crisis have "extraordinarily weak" bank regulatory systems and that bankers themselves do not know how to properly assess loan risks. To restructure the systems, however, will likely take "a long time" and therefore economic recovery will be slow.

The heavy falls on Wall Street yesterday - primarily due to exceptionally heavy selling of technology stocks - drove Latin American stocks sharply lower and share on the Sao Paolo stock market in Brazil - seen as potentially the next economic disaster zone - slumped almost six per cent. This was despite early indications that President Cardoso, who has pledged tough action to battle the financial crisis, was shown as taking a big enough percent lead, which would guarantee him re-election without having to go through a second round.

Asian markets were the first to react to the inconclusive outcome to the weekend G7 finance ministers meeting. Hong Kong shares, shielded from a global slump last week by two days of holidays, slid more than four per cent and Tokyo shares slipped to another 12-year closing low.

US Treasury Secretary Mr Robert Rubin said there was an increased urgency" for Japan to take strong and effective action. But traders were pessimistic about the chances of immediate action by the government.

After posting gains earlier in the day, European markets fell back before the close as Wall Street suffered renewed selling pressure in early trading.

In London, the FTSE 100 index closed over 2.1 per lower on 4648.7 points. In Germany, the DAX index closed 1.2 per cent lower after initially rising 2.24 percent higher in early afternoon trading.

"Relatively little good news came from the G7 meeting. The markets saw only a rapid and large cut in interest rates as a way out of the current crisis. And that didn't come. Volatility is going to remain very high for the time being," one German trader said. An economist at Paribas bank, Mr Nick Parsons, predicted that the embattled global economy, hit hard by successive crises in Asia, Russia, Latin America and the international banking system, would weaken further.

"We believe that the downturn in the global economy will worsen, and the US economy will suffer most amongst the majors," he said. Some governments and market players had hoped that the international economic framework would be redrawn to better cope with the vast and volatile flows of capital around the world. Western equities.