US leads the way again as markets tumble further

Wall Street had another horrible day yesterday with all major indices continuing to tumble for the fourth day in succession to record lows. In Europe, stock markets once again took a battering across the board, refusing to sustain tentative optimism displayed early in the day.

Most markets lost all conviction as the US opening approached, with the afternoon bringing no respite.

The Irish market was among the losers, shedding 2.5 per cent on the day, despite spiking up in early trading. Chief among stocks hit were the banks, with both AIB and Bank of Ireland no longer managing to escape the ravages spreading through the international financial sector.

"The market is coming into the realm where it's not overvalued any more," said one Dublin dealer last night. "Hedge funds are the only firms making money right now. They're the only people out there with a half-grin on their face."

The big loser in New York was the technology-heavy Nasdaq, which dropped 53 points or 4.2 per cent to finish at 1,229, after bleak forecasts from Lucent Technologies and Computer Associates. The broader Standard & Poor's index of the 500 most popularly traded stocks dropped 20 points or 2.5 per cent to 799, its lowest point since May 1997.

In the third-heaviest day's trading in history on Wall Street, the Dow industrials sank another 82 points or 1 per cent after a choppy session, to finish at 7,702.

More than $1.5 trillion has been wiped off the value of US stocks in the past two weeks and the Dow has sunk 19 per cent to hit October 1998 lows.

Enron came back to torment the markets as evidence emerged at a Congressional hearing in Washington that two major banks Citigroup and JP Morgan Chase were implicated in helping the Houston energy trader to hide its debt and boost share price.

After falling 13 per cent on Monday, Citigroup lost another 15 per cent yesterday as billions were wiped off its market capitalisation. JP Morgan Chase fell 13 per cent.

Both banks were charged with marketing financial products to Enron and other energy-trading firms to enable them to inflate profits and keep share price up.

The financial sector braced for more setbacks after news that the US Justice Department was investigating the roles of Merrill Lynch and National Westminster Bank, now a unit of Royal Bank of Scotland, in the Enron collapse last December. The instruments sold to Enron were Yosemite, devised by Citigroup, and Mahonia, devised by JP Morgan, both designed to make Enron's public disclosures more appealing to investors. The preferred method was converting debt to "confirmed revenue".

An official provided evidence to the panel that the deals allowed Enron to understate debt by 40 per cent and overstate cash flow by 50 per cent, according to the Wall Street Journal.

"The evidence indicates that Enron would not have been able to engage in the extent of the accounting deception it did, involving billions of dollars, were it not for the active participation of major financial institutions," says a copy of the testimony.

Investors' continuing lack of faith in the markets after nine weeks of selling outweighed encouraging earnings reports from companies like Gillette and Texas Instruments.

The uncertainty is likely to continue until after August 14th when chief executives of the top 100 publicly-listed companies are required to swear to the accuracy of their company accounts. Investors fear that some will release negative information in a last-minute effort to avoid any appearance of impropriety.