Fears of a US slowdown and further downgrades of some leading technology shares drove the Nasdaq market sharply lower on the opening trading day of 2001.
By the end of trading last night, its main composite index had fallen 178.61 points, or 7.23 per cent, to 2,291.91 adding to the dismal performance of last year when the index fell 50 per cent from its March 2000 peak. The blue-chip Dow Jones Industrial Average shed 1.3 per cent.
The first sign that 2001 will be difficult for the US economy came with the publication of the first report this year from the National Association of Purchasing Managers. The NAPM index - one the most closely watched economic barometers in the US - fell four percentage points to 43.7, its lowest level for 10 years.
"The manufacturing sector is definitely struggling at this point," said NAPM chairman Mr Norbert Ore. "There are few signs of encouragement as we close 2000. For manufacturing, higher interest rates and higher energy prices in 2000 have contributed greatly toward a lacklustre year for most of the sector.
"It's certainly indicative of a downturn in manufacturing that we saw start five months ago and . . . a deepening of that downturn," Mr Ore said.
Wall Street analysts had expected a December NAPM index of 47. December was the fifth straight month in which the purchasing manager's index declined, and Tuesday's report confirmed a spate of other recent indicators showing that the once red-hot US economy had cooled considerably.
The new orders index was also down sharply, falling to 42 in December from 48.4 in November, which Mr Ore said could signal further weakness in the early months of 2001.
"We'd like to see some strength in that new orders number. It should be one of the leading indicators. It doesn't bode well that we're down in the 42 range in new orders," Mr Ore said.
Analysts said the purchasing managers' index figure will put increased pressure on the Federal Reserve to cut interest rates to try to prevent the US economy moving into recession.
The Fed, whose policymaking Open Markets Committee meets later this month to decide on interest rate changes, has already indicated that there will be a cut in rates. The main question on financial markets is whether the Fed will cut rates by just a quarter of a percentage point or whether it will be more aggressive with a half-point cut.
"The December results suggest the economy is slowing by more than the Fed would like to see," said economist Mr Henry Wilmore of Barclays Capital. "They reinforce our view that the Fed will ease [credit conditions] several times in the first half of this year."
The NAPM figure had a modest negative impact on the "old economy" shares that dominate the Dow Jones index. But the effect of the fall in industrial purchasing was compounded for high technology companies by sharp downgrades by Wall Street analysts for two blue-chip technology stocks, EMC and Analog Devices.
Analog sank after a Morgan Stanley Dean Witter analyst said the slowing economy was hurting the computer-chip maker. Irish technology shares fell heavily and Baltimore was down 26p in London to 319p sterling after Robertson Stephens downgraded a whole host of security software stocks, including one of Baltimore's main competitors VeriSign. Iona and Smartforce also fell heavily in the opening session on Nasdaq.
