Share prices slump after stumble in Hong Kong

Over £1 billion was wiped off the value of the Irish stock market yesterday, as prices of the leading shares fell in line with tumbling world markets. However the US market regained some ground late yesterday, which may help European markets this morning.

Earler in Dublin the ISEQ Overall Index fell 116 points or by almost 2.3 per cent to 5036.31, with the bulk of the fall in the index being accounted for by a 3.4 per cent in the financial shares.

Markets in Europe took their cue from an the overnight 5.26 per cent fall in Hong Kong's Hang Seng index and a near 2 per cent slip in Tokyo. Downward pressure was reinforced by Wall Street's own overnight 1.65 per cent decline in the Industrial Average on worries over the earnings of US multinational companies.

Wall Street continued its slide after it opened yesterday with the Dow immediately falling by over 100 points and putting further pressure on European stock markets. At the close in New York last night, the Dow had recovered considerably closing down 27.16 points at 8936.57.

"The market's beginning to latch on to the impact a strong dollar would have. Asia's in trouble, full stop, but it's going to hit US exports also and that's a double hit for the US economy," said one dealer in London.

The Hang Seng index fell 5.3 per cent after Mr Tung Chee-hwa, the territory's chief executive, said economic growth would fall substantially and could even be negative.

First quarter growth figures due tomorrow expected to show a fall in output and to signal the territory's first recession since 1985.

Investment analysts said the government appeared to have waited until after this week's legislative election to signal the severity of the downturn. Last weekend Mr Donald Tsang, financial secretary, said he saw no need to revise his forecast of 3.5 per cent growth for the year.

Meanwhile, the continued weakness of the Japanese financial system was illustrated when Moody's reduced its credit ratings of five Japanese banks, including Bank of Tokyo-Mitsubishi and Dai-ichi Kangyo Bank, after the sector's recent set of poor results. The Nikkei 225 average fell 220.53 to 15,664.29.

Analysts said the fall of the Japanese yen, which hit a seven-year low against the US dollar on Tuesday, may have sparked the sell-off.

Mr Joe Rooney, global strategist at Lehman Brothers, said: "Trouble has been brewing under the surface for a few weeks. The weakness of the yen is a threat to Japan's Asian competitors such as Thailand and Korea and raises fears of a Chinese devaluation, which puts pressure on Hong Kong. Wall Street has fallen in response to the deterioration of conditions in Asia."

Evidence of Asia's problems revived worries that economic, and corporate earnings, growth in the US and Europe might be adversely affected.

Europe's stock markets fell by around 2 to 3 per cent, with the FTSE Eurotop 100 index dropping 62.8 to 2,812.42. Some analysts felt the fall in European markets was an inevitable setback after their recent strength, and some were predicting further falls.