Late afternoon reports that the Madrid bombings might be the work of Al Qaeda and that France had raised its terror alert sent stocks tumbling on Wall Street yesterday. Una McCaffrey reports

It was a similar story across Europe with stocks falling to a five-week low as investors nervously held on to their cash.

The blue chip Dow Jones Industrials average fell 168.51 points, or 1.64 per cent, to 10,128.38, one of its biggest one day retreats in the last year. The Standard & Poor's 500 Index lost 17.12 points, or 1.52 per cent, to 1,106.77.

The technology-heavy Nasdaq Index fell 20.26 points, or 1.03 per cent, at 1,943.89.

Irish stocks shed about 1.5 per cent of their value amid the general panic, with one Dublin dealer describing "a sea of red" across the ISEQ.

Companies that had notched up good gains over past weeks suffered most, with recent winners such as Anglo Irish Bank and Elan posting the most severe losses.

Ryanair was hit in line with travel stocks across the continent as concerns spread that the Madrid bombs could cause the cancellation of trips. The airline dipped by as much as 8 per cent at one point before bargain-hunting investors stepped in and drove it back to close more or less unchanged.

Other markets fared worse, with the ISEQ ending the day as an outperformer despite closing lower.

British blue-chips had their worst day since last May, as economic and global security fears damaged confidence, with Royal & Sun Alliance and British Airways heading the hit-list.

Britain's second-biggest general insurer, Royal & Sun, slumped by 15.5 per cent to its lowest level since early January, after it recorded a 38 per cent drop in 2003 profits and said it would set aside more money to pay out claims.

British Airways fell 11 per cent, warning that costs in the year to end-March 2005 were on the rise.

The DJ Euro Stoxx 50 index meanwhile closed off 3 per cent at 2,834.02 points on what was the eve of the first anniversary of the bull market.

"It's a general malaise," said one Dublin-based commentator. "People who could be buying just aren't."

Initial movements in the US indicated that markets there would follow the European trend, but remarks by Federal Reserve chairman Mr Alan Greenspan to Congress helped to assuage investor nerves. However, this later changed as the Al-Qaeda claims of involvement began to emerge.

US stocks had fallen in the previous three sessions but moved ahead after Mr Greenspan made comforting comments on the US jobs outlook.

"Any time Greenspan makes a positive reference on the economy, it is absolutely a positive for the market," said another analyst.

Mr Greenspan said he was "fairly well convinced" that hiring by employers will improve soon if current economic growth rates continued.

A lack of new jobs in the US had prompted investors to question the strength of the economic recovery.- (Additional reporting, Reuters)