Shares plunge further over US rescue plan concerns

MARKETS:TURMOIL AGAIN gripped international markets as fears resurfaced about the health of financial stocks and uncertainty and scepticism persisted about the US government's $700 billion (€476 billion) bailout plan for its troubled banking system.

The Dublin market endured one of its worst trading days in years with shares hitting an 11-year low at one stage as the market fell by more than 7 per cent. A minor bounce eventually saw it close the day 5.95 per cent - or 236.56 points - weaker at 3,739.45.

European shares ended sharply lower for the second straight day yesterday. National benchmark indices fell in all 18 western European markets. The UK's FTSE 100 lost 1.6 per cent as British Airways and Man Group declined. France's CAC 40 dropped 2 per cent and Germany's DAX retreated 0.6 per cent.

"What you see now are very nervous markets out there," said one trader. "The UK banks were as bad as the Irish banks at one stage but they bounced a little bit more into the close, but clearly it is just a systemic fear across the board of anything to do with financial stocks and that the problems will not be solved in the short term or any term that we can see on the horizon."

Concerns that the slowdown will continue to weigh on earnings and increase bad debts at home caused financial stocks to fall, while fears about the future of the US bank rescue package which the government is trying to push through Congress continue to scare off investors.

"It is all pretty much revolving around this new rescue plan in the US and until that gets sorted and details of how the plan is going to take shape are clear, the market is really struggling for any momentum. Uncertainty is the worst nightmare and there is plenty of it around at the moment," said another broker.

With the exception of AIB, financial stocks were in freefall. Both Bank of Ireland and Anglo Irish Bank were trading down 17-18 per cent at one stage before a small bounce at the end of the day brought them off their lows to finish just over 14 per cent weaker. Anglo is suffering from a feeling that it is more exposed to the property market than the other financials, according to analysts.

However, AIB avoided the banking bloodbath and was nearly 3 per cent better off at €6.07 by the time the market closed. Some buyers are now taking the view that the stock is undervalued compared to its peers, said one trader. The market wasn't helped by the fact that CRH received a downgrade from Merrill Lynch yesterday morning. The stock was trading down around 10 per cent at one stage but bounced a bit towards the close, eventually closing 8.2 per cent weaker.

The sell-off in CRH was as much sector-related as stock-related, with recession fears and Monday's spike in the oil price hitting construction stocks. Although oil fell back yesterday, investors were still spooked by Monday's record one-day gain.