US terror alerts spark renewed uncertainty on global markets

Renewed terror alerts in the US spooked world equity markets yesterday, injecting fresh uncertainty for investors. Siobhán Creaton, Finance Correspondent, reports

US stock markets opened weaker before recovering ground, while share prices in Europe traded nervously. Irish shares closed marginally higher, although the level of activity was low due to the bank holiday. The ISEQ Index closed at 5,368.67, up 0.19 of a percentage point, with dealers expecting volatility in the short term.

Fears about possible al-Qaeda attacks on US financial institutions rattled nerves, although US stocks managed to settle early in yesterday's trading session.

Citigroup, Prudential Financial, the International Monetary Fund, the New York Stock Exchange and the World Bank were included in a "high" level threat alert by the US department of homeland security on Sunday, which said the attacks could come from al-Qaeda.

The warning undermined the dollar and sent oil prices soaring.

"The market is not going anywhere, it just doesn't know what to do with itself," said Mr Alastair Duffy, a fund manager at Aegon Asset Management in Edinburgh.

"People are concerned about high oil prices. This terrorist alert in America is not helping matters, and certain sectors have disappointed quite badly in the last month," he said.

The warning, coupled with higher oil prices, depressed airline stocks, with British Airways, Lufthansa and Air France all down by more than 2 per cent. Irish low-cost carrier Ryanair was also down 2 per cent in Dublin.

A strong earnings report from Procter & Gamble and a government report showing manufacturing growth added some bright spots to an otherwise dark morning.

Data showing a slight rise in the pace of manufacturing expansion helped soothe concerns, following weaker-than-expected economic growth data last week. The Institute for Supply Management said its index of US factory activity rose to 62.0 in July from 61.1 in June, right in line with Wall Street forecasts. Any reading above 50 indicates growth.

Around Europe, London's FTSE 100 closed flat, while Paris's CAC 40 ended down 0.6 percent.

In Zurich, the SMI shed 0.2 per cent and Frankfurt's DAX closed 0.9 per cent lower.

"These warnings are something we're learning to live with," said Ms Lisa Hansen, head trader at Transamerica Investment Management. "We're not going to see a significant move in the market unless there's an event that drives it."

The dollar's retreat was arrested by the upbeat economic news from the manufacturing sector, easing the selling pressure, particularly in Asia and Europe, triggered by the terror alert.

Mr Ashraf Laidi, chief currency analyst at MG Financial in New York, said the market had adjusted to these warnings.

"There seems to be nothing new. When traders hear the same information for the past day- and-a-half, the news becomes stale, and this gives people no choice but to cut down on dollar shorts and then move forward, as we have a big week ahead in terms of data," he said.

The dollar had fallen against the Swiss franc, euro and yen as investors shifted their cash into safe-haven assets. The Swiss franc, a refuge in times of geopolitical uncertainty, was the biggest gainer on the day at some 1 per cent.

The US currency closed at $1.2039 against the euro.

Some analysts also said the dollar's security-driven losses were accelerated by continuing gains in oil prices.

In late July, the dollar rose sharply after Federal Reserve chairman Mr Alan Greenspan fanned optimism about the US economy.

The market's focus now shifts to the US non-farm payrolls report for July, due on Friday, which is the last major data release before the Federal Open Market Committee's policy-setting meeting on August 10th. - (Additional reporting, Reuters)