Stock markets tumbled yesterday as weak US economic data, a downbeat speech by US Federal Reserve chairman Mr Alan Greenspan and fears of war in Iraq hit investor confidence.
Irish shares lost more than €1 billion in value amid the international gloom and as the "patriotic rally" which has sustained shares in recent days fizzled out.
Wall Street was hit by a sharp increase in the nation's current account deficit and a surprising jump in weekly jobless claims, heightening concerns over the outlook for the economy.
"The economic data was softer than people had been expecting or hoping for ... the jobless claims number came in much higher than anyone really expected," said Mr Alfred Kugel, senior investment strategist at Stein Roe Investment Counsel. "And nothing that [US President George] Bush or Mr Greenspan said changed anybody's mind."
Mr Bush told the UN General Assembly that "action will be unavoidable" against Iraq unless the United Nations takes a hard line forcing Baghdad to disarm. In remarks before Congress, Mr Greenspan said the economy is holding up but warned that a return to spending discipline was vital for economic health.
Mr Greenspan said the most recent forecasts of the Federal Reserve's policymakers, released in July, "would be somewhat lower" if re-estimated today.
He also said a war with Iraq would be unlikely to cause a recession. "I don't think that the effect of oil as it stands at this particular stage is large enough to impact the economy unless hostilities were prolonged."
In spite of the economic fragility, Mr Greenspan said there was no need for another boost from lower taxes or higher spending.
The Fed chairman called on Congress to renew spending caps due to expire at the end of this month, which helped the US to reduce its persistent budget deficits during the 1990s. "Returning to a fiscal climate of continuous large deficits would risk returning to an era of high interest rates, low levels of investment, and slower growth of productivity," he said.
The ISEQ index of shares tumbled by nearly 2 per cent as most of the leading stocks gave up ground. Ryanair was among the stocks hit by growing concerns about a rise in oil prices in the event of war in Iraq, losing more than 3 per cent. "It's hard to see a huge amount of progress until a decision is made on the Iraqi situation," one dealer said.
Across the euro zone, the Euro Stoxx 50 index of blue-chip shares slumped by 4.6 per cent. In London, a 6 per cent drop in mobile phone giant Vodafone after its house broker cut it to "hold" from a "strong buy" hit the FTSE 100 which closed 3 per cent lower.
Continental markets suffered even more with French shares losing 4.6 per cent as they suffered their largest one-day fall in nearly six weeks while German stocks closed 4 per cent lower.
A weak start on Wall Street only weighed further on European shares. The Dow Jones went on to close 2.35 per cent lower while the Nasdaq lost 2.69 per cent.
"We are not seeing aggressive selling. We are just seeing a lack of buyers," said one US trader. "If you are a potential buyer of stock and you have two world leaders talking about issues that could stall economic growth, you are going to be a lot more cautious."
A weak batch of US economic data added to the gloom. The US current account deficit widened to a record $129.96 billion (€133 billion) while the number of Americans signing up for state unemployment benefits rose unexpectedly to the highest level in more than four months.
