International worries dominate

A REPORT that the US Federal Reserve is set to hoist US interest rates by half of one percentage point after its next policy-making meeting plus news of the US missile attack on Iraqi installations saw British share prices fall sharply yesterday.

International worries about the prospect of a deteriorating situation in the Middle East unnerved global bond and stock markets, triggering persistent selling of European stocks.

Adding to the London market's uncertainty was growing speculation about today's regular monthly meeting between Mr Kenneth Clarke, Chancellor of the Exchequer, and Mr Eddie George, governor of the Bank of England.

Most market observers adopted the view that the Chancellor would not move to reduce British interest rates yet, although there were some who said a cut was a real possibility.

At its worst yesterday, shortly after Wall Street opened for business after the long US holiday weekend, the FT-SE 100 index showed a 48.6 fall, before rallying strongly. It eventually closed the session a net 28.5 lower at 3,855.9.

Weakness in the leaders quickly spilled over into the second line stocks, where the FTSE Mid-250 index dropped 28.6 to 4,385.4.

Some extreme unease across Europe about the downside potential for Wall Street in view of the US interest rate fears were partly allayed by the latest economic news from across the Atlantic. The National Association of Purchasing Management's August (NAPM) index came in at 52.6 per cent, up from 50.2 per cent but well below some of the US market's more fanciful numbers.

The NAPM number helped calm an initially panicky Wall Street, where the Dow Jones Industrial Average fell almost 60 points, before embarking on a strong recovery which saw the Average pick up sufficiently to post a 16 point rise 90 minutes after London closed.

There were few winners in the London market at the outset with oil stocks among a handful of upside performers. But with crude oil prices tending to come off their initial high levels, oil stocks struggled to hold on to their initial gains.

Turnover in equities was given a boost by news that the government had sold its residual stakes in the two English generators, National Power and PowerGen. The stakes, 28.5 million and 17 million shares respectively, were sold on to Goldman Sachs and UBS, via bought deals.

Goldman paid 390 1/2p a share for the National Power holding, placing most of the stock at 393p and netting a potential return of £700,000 sterling if all the shares were sold. Turnover figures indicated that the PowerGen stock was not placed.