US advances in Iraq send markets higher

Reports from Iraq indicating that the US-led allies had regained the initiative and that the battle for Baghdad was under way sent global equity markets and the dollar higher yesterday.

Gold, traditionally a safe haven in times of geopolitical troubles, fell sharply and oil prices slid also.

Wall Street opened decisively higher as news that the US military had closed to within 20 miles of Baghdad was seen as a big step forward in the alliance's campaign to topple the regime of Saddam Hussein, the Iraqi president.

Those developments clearly outweighed news from the United States Commerce Department that orders for US manufactured goods slumped sharply in February, suggesting increased caution.

The Dow Jones Industrial Average 215.20 up at 8,285.06, while the Nasdaq jumped 48.41 to close at 1,396.71. The Standard and Poor's 500 also closed up 22.42 at 880.90.

European markets followed a similar route and in early evening trade, the FTSE Eurotop 300 index was 3.2 per cent higher at 778.42.

The global share price rally simply passed the Irish market by, however, as the ISEQ finished barely changed on the day. Dealers noted that it was not unusual for Irish share prices to lag international rallies just as they tend to outperform overseas markets on the way down.

Other European markets were strong including Paris which closed up 4 per cent, despite warnings that France could break the EU's budget rules for three successive years unless it takes urgent action to cut its deficit.

The European Commission yesterday launched the so-called "excessive deficit procedure" against France for its 2002 deficit, which narrowly exceeded the pact's limit of 3 per cent of GDP.

But according to forecasts presented by Mr Pedro Solbes, EU monetary affairs commissioner, the French deficit will also be in breach of the pact in 2003 and 2004 unless remedial action is taken.

The dollar closed at $1.07 to the euro compared to Tuesdays close of $1.09.

The European Central Bank meets today and while many economists believe there is a compelling case for a cut in key rates, few believe a move is likely while the economic environment remains clouded by war.

The ECB last cut rates on March 6th, when a quarter point reduction took official rates to 2.5 per cent. "[A cut in rates] may not come as early as \ but the pressure is mounting and an inter-meeting move thereafter cannot be ruled out," said Mr Daragh Maher at ING Financial Markets.

European finance ministers will ask Mr Wim Duisenberg to delay his retirement as president of the European Central Bank for up to six months because of the legal cloud still hanging over Jean-Claude Trichet, his proposed successor.

It is understood the EU's Greek presidency is in favour of taking Mr Duisenberg up on his offer to extend his term in a bid to end any financial market uncertainty over the future leadership of the bank.

(Additional reporting by Financial Times)