Market facing further sharp falls as Wall Street takes another dive

SHARE prices in Dublin are facing further sharp losses after the American stock market took another dive in late trading last night. At the close of the US market last night, the Dow Jones index had fallen another 94.04 points to close on 6,517.01.

The Dow fell as much as 111 points two hours after the Irish close after a series of computer generated sell programmes, before some tentative "bottom picking" brought a modest recovery.

Once again, fears over the direction of American interest rates were responsible for the weakness and dealers believe that all stock markets will remain nervous and unstable ahead of key American economic data tomorrow.

If the American figures show a strong growth in employment in March, then the markets are expected to respond negatively in anticipation of a further rise in US rates. All the indications from data published in the US in the past week is that the economy is growing strongly, leading to speculation that the Fed will raise rates in a counter inflation move.

Earlier in Dublin, the stock market recovered strongly after Wall Street closed up 27 points on Tuesday evening, with strong demand for the banking shares that had borne the brunt of the selling on Tuesday.

The ISEQ Overall Index regained about a quarter of the Tuesday losses, but few in the market had any great level of confidence in the recovery. The London stock market closed marginally lower. The question everyone tried to answer yesterday was whether the markets were undergoing a healthy correction after months of spectacular gains, or the early stages of something more serious and longer lasting.

Recent suggestions that European markets would "de couple" from Wall Street and go their own way has come to nothing. Investors throughout the Western world are transfixed by the possibility of a further US interest rate rise and what that would do to the lengthy bull run on stocks.

The bond futures are also nervous. According to Mr Aidan Clare, head of bond and derivative sales at Ulster Bank Markets, there is likely to be short term bounce in US and German markets before they start to fall again.

"The long term picture is bearish," Mr Clare said. "But we should see some form of correction over coming weeks."

But longer term, according to Mr Dermot O'Brien, chief economist at NCB Stockbrokers, the key issue is how much more can be expected in the way of rate rises in the US and when they will come.

He is expecting at least one more rise at the next Federal Reserve meeting on May 20th but said the key issue will be whether the Fed also puts rates up at its following meeting at the beginning of July.