Markets retreat as Wall Street stumbles
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Your support makes all the difference.The financial markets went into retreat yesterday, dominated by a weaker dollar and falling share prices on Wall Street for the second successive day. Shares in London reversed Thursday's spectacular gains, while the pound declined further against the German mark.
Behind the dramatic moves lay investors' renewed fears that US interest rates will rise and dashed hopes that German rates will fall.
The FTSE 100 index lost nearly 53 points to close at 4,218.7, after a 52-point rise on Thursday. The pound fell nearly two pfennigs to just over DM2.65 following its five pfennig dive the day before, although it was steady against the dollar yesterday.
The Dow Jones Industrial Average continued to track downwards yesterday in the wake of the precipitate 94-point slide that rocked the New York markets at the close of play on Thursday when a record number of shares were traded. It ended the day down 59.27 points at 6,696.48.
Speculation that the astounding bull run on the Dow may at last be entering a correction was fuelled yesterday by activity on the bond market, where interest rates continued to edge higher. At midday the 30-year US Treasury was off by half-a-point while the yield had risen to 6.90 per cent.
"This smells like a correction, it feels like a correction, I would be surprised, in fact, if it does not turn out to be that long-awaited correction," commented William Mattison of Gerard Klauer Mattison in New York.
Few on Wall Street were predicting anything more dramatic, however. Attention is still focused on the next meeting of the Federal Reserve open market committee on 3-4 February to consider a possible change in interest rates.
Predicting that the Fed would leave rates alone, Jeffrey Applegate of Lehman Bros said that there was no need for investors to panic. "We think we've probably got a modest correction at hand."
Thursday's turnaround came as the industrial average was continuing its run into record territory and breaking through the 6,900-mark. Until midday on Thursday, the index had put on nearly 7 per cent in value just this month. Even after Thursday's 94-point dive, the increase this year was 4.8 per cent.
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