US-China tension rattles Wall Street

Rising US-China tension over a downed US Navy spy plane and more bad news about corporate profits sent stocks tumbling on Wall Street yesterday, driving down the technology-heavy Nasdaq composite index to a 29-month low.

After US President George W. Bush said at midday that he was "troubled" by the Chinese response in the standoff over the US surveillance plane and its 24-member crew, the Dow Jones Industrial Average dropped 180 points in just 45 minutes, ending a brief rally. It closed down 100.85 at 9,777.93. Hopes that the first day of the new quarter would see the bottom in the market slide were dashed when technology stocks were hit by new losses in the semiconductor sector which fell 8 per cent, breaching a 52-week low.

The Nasdaq lost 25 per cent of its value in the January-March period and is now down more than 65 per cent from its high a year ago.

The Dow lost 8 per cent in the quarter and the S&P 500 12 per cent. Chemical giant DuPont became the latest major US company to announce lay-offs in response to the economic slowdown.

The Wilmington, Delaware-based company said it would cut 4,000 jobs, or about 4 per cent of its global workforce, as well as 1,300 contract personnel, and close its less competitive plants, in response to weakening business conditions in US apparel and textile markets. A DuPont spokeswoman told The Irish Times that the lay-offs would have some impact on the company's 800-strong workforce at its Maydown manufacturing plant near Derry, but would only involve "some contractors and a few Du Ponters [employees], all related to machinery".

Approximately 75 per cent of the affected employees and contractors are in the United States.

In what has become a trend at US newspapers, WSJ.com, the website of the Wall Street Journal, announced it would lay off an unspecified number of its 260 employees as part of "company-wide restructuring". The markets were also depressed by news from American Express that first-quarter earnings would fall 18 per cent from a year ago to reflect $185 million (#210 million) in pre-tax losses from the sale and a write-off of high-yield debt.

The New York-based creditcard company said it anticipated first-quarter earnings per share falling below the 48 US cents it reported a year ago.

The Dow and the Nasdaq had risen briefly in early trading yesterday on the back of a report that the US manufacturing sector was showing some tentative signs of recovery after a steep eight-month downturn. Industrial activity unexpectedly rose for a second straight month in March, according to the National Association of Purchasing Management. Its manufacturing index recovered to 43.1 last month from 41.9 in February as new export orders grew for the first time in six months and firms made progress in unloading a glut of inventories. Construction spending also rose in February. The good news was bad news for those investors who had started to anticipate that Federal reserve chairman Mr Alan Greenspan might announce a further interest rate cut, possibly as early as this Friday, on top of the 1.5 point reduction since December, to prevent the slowdown becoming a recession. A fall in the manufacturing index combined with a worse-than-expected jobs report on Friday could have made this an outside prospect, some analysts said.