THE US missile attack on Iraq and fears of an imminent hike in US interest rates dragged European markets and US stock markets lower yesterday, although the Dow Jones blue-chip index recovered as the day wore on to post a closing gain of 32.18 to finish at 5648.39.
In line with weaker performances internationally, the Irish stock market lost ground, with the ISEQ index down 16.86 points to 2,518.32 on the day.
Share prices across international markets were knocked back immediately in reaction to the US attack on Iraq, while fears of an imminent rise in key US interest rates also held back progress.
The Dow Jones industrial average of blue-chip stocks lost more than 50 points within 10 minutes of Wall Street's opening, the first time the key New York share market had traded this week and could react to the renewed tensions in the Middle East.
The initial sell-off on Wall Street following Monday's Labour Day holiday was also prompted by mounting fears that the US Federal Reserve might increase interest rates before elections in November to keep inflationary pressures in check.
A report in the Wall Street Journal said US policy-makers were considering a larger-than-expected 0.5 per cent rise in the key US interest rate. Most analysts are now expecting the Fed to move on rates on Friday.
The sharp drop in US blue-chip share prices at the opening activated the New York Stock Exchange's limits on computer programme trading and, after an hour, the Dow was down around 30 points at 5,586.
Market nerves steadied however after a key US economic indicator turned out weaker than forecast, taking some pressure off stock and bond markets by mid-afternoon in Europe.
Leading European stock markets had looked for a lead from Wall Street and were about one 1 per cent low although above their lows.
The renewed tensions in Iraq hit British stocks, dragging down British Airways and airport operator BAA among others in afternoon trading, to leave the FT-SE 100 index down 28.5 points to 3,855.9 yesterday.
Nervousness also hit the Paris Bourse and the CAC-40 share index slipped by 0.28 per cent on the day to end at 1,971.43. The Frankfurt stock market also suffered a substantial setback, shedding more than 1 per cent in floor trade as the market reacted nervously to the news from Iraq and ahead of the release of US statistics.
The US retaliation for weekend incursions by Iraqi troops into Kurdish areas also stoked, up the oil market.
