International stock markets appear to face a period of turbulent trading after fears of higher interest rates sent share prices plunging yesterday. In New York last night, the Dow Jones share index closed more than 3 per cent lower, following earlier sharp losses on the main European markets.
Increasing evidence of the strength of the US economy has raised expectations of an early increase in interest rates by the Federal Reserve Board. This triggered heavy selling on Wall Street yesterday.
The technology sector - where share prices have risen strongly in recent months - suffered heavily. The Nasdaq electronic share market, where many of these stocks are traded, fell by 5.5 per cent, the eighth-largest fall in the market's history.
Much of the Wall Street fall came after European markets had closed, which means a nervous opening on this side of the Atlantic this morning. However, following Monday's 1.2 per cent fall on Wall Street, European markets were already in decline by early yesterday.
London suffered heavily and the FTSE 100 index of British shares dropped by 264.3 points, or 3.8 per cent. It was the biggest ever single-day points fall in the index, although in percentage terms, the decline was the eighth-worst on record.
Amsterdam's AEX index fell 4.9 per cent, its largest single session pull back for a year, while a 4.2 per cent tumble for the CAC index in Paris was the market's biggest one-day drop for 15 months.
In Dublin, the value of Irish shares fell by more than £1 billion, as the ISEQ index closed 1.5 per cent lower. The main financial shares suffered most, with AIB losing 3.5 per cent and Bank of Ireland dropping 1.6 per cent.
"The banks have taken a battering. Interest rate speculation is bad for them," one dealer noted.
Shares in Irish technology companies - most of which have risen sharply in recent months in line with other shares in the sector - quoted on the Nasdaq market in the US also fell heavily yesterday.
Shares in Baltimore Technology, the Internet security company, lost 8 per cent of its value to $76.5, while stock in Iona Technology, the specialist software firm, fell almost 10 per cent to $47.
Analysts said that fears of higher interest rates were starting to concern investors seriously. In the US, as the Y2K bug failed to bite, evidence is growing of strong economic recovery. Many forecasters expect the US Federal Reserve Board - under chairman Mr Alan Greenspan who was re-appointed by President Clinton for a fourth term yesterday - to raise interest rates when it meets on February 2nd.
The latest market forecasts are for US rates to rise further later in the year, and end a full one percentage point higher than their current level.
The European Central Bank is also expected to increase euro-zone interest rates, although it may not do so for some weeks yet. An earlier move is anticipated by the Bank of England, which may increase rates as early as next week.
A warning by its governor, Mr Eddie George, yesterday about the valuation being placed on technology companies on the stock market contributed to the shares decline in prices on the London market yesterday.
Last night, many leading US analysts were predicting that a nervous period lay ahead for the markets. Technology shares are seen as particularly vulnerable.