Stocks, oil, currencies buoyed by resilient US markets

Stocks, currencies and oil all fell prey to a heavy dose of volatility yesterday, as news of the London bombs spread across the world's markets. "All bets were off come 10.30 this morning," said one Dublin dealer last night. "Everything just collapsed."

UK assets were hardest hit in the early confusion, with the pound tumbling to an 18-month low and the FTSE falling by 4 per cent. A similar reaction was soon replayed across Europe, as tens of billions of euro were wiped off the continent's markets. In Dublin, the Iseq rushed to copy the FTSE's early declines - "the minute the news came out, things just went bang right across the board," said a dealer.

Oil prices dipped by about $2 a barrel on worries that the attacks could eat into economic growth.

Currency trade was also full of nerves, with sterling tumbling to an 18-month low, and investors racing into safe-haven assets such as bonds, gold and the Swiss franc. The euro provided a home for some nervous assets as investors sold off the dollar amid fears that the US could be the next terrorist target.

Most of the initial moves were reversed, however, at least in part, as the day progressed.

"It was a rollercoaster," said one Dublin market player last night. "The name of the game today was volatility."

Investors drew particular comfort from the reaction of the US markets, which fluttered only slightly on the London news.

The European Central Bank President Jean-Claude Trichet said the ECB, the Bank of England and the US Federal Reserve had agreed that markets were working and that no emergency injections of liquidity were necessary.

Trichet said he had spoken to both Bank of England governor Mervyn King and to Fed chairman Alan Greenspan, after the ECB left its own interests rates unchanged at 2 per cent.

"At this stage we have no particular information that would be calling for action. If it were the case, you can be sure that we would do that in real time. Again, we are in permanent contact," Trichet said at the ECB's monthly news conference.

Markets in Europe steadied as the afternoon restored some equilibrium to investor moods and those with money to spend started to consider the value that had been created in equities.

"There was a lot of cash waiting in the wings," was one dealer's analysis of the day's finale. "As soon as the cash came in, we got a bounce."

In the end, the Dublin market limited its losses to 1 per cent, with much of this due to weakness in CRH.