European stock markets are in for another nervous week despite staging an end-week rally on Friday after the Russian and Hong Kong governments fought back against devaluation pressures.
However, many analysts fear the rally may prove just a temporary respite from concerns that the problems in emerging markets will trigger a global economic slowdown. Like other western markets, the Irish market - which has fallen by nearly 12 per cent over the last month - will remain vulnerable to developments in both Asia and Russia in the days ahead.
Over the weekend, Russian Prime Minister Sergei Kiriyenko met top ministers to discuss Russia's economic crisis and President Boris Yeltsin moved his holiday location closer to the Kremlin. Yeltsin has put a brave face on the turmoil, saying Russia would not default on its debt or give in to pressure to devalue the rouble.
"There is a new wave of world financial crisis and we have to brace ourselves again to be able to deal with this situation," he said. "We've calculated our reserves and are ready to resist."
US President Bill Clinton also spoke to Yeltsin by telephone for 40 minutes on Friday and urged him to act quickly and decisively to restore confidence in the economy.
Meanwhile, Interfax news agency said Kiriyenko had held talks on Saturday with Central Bank chairman Sergei Dubinin, Finance Minister Mikhail Zadornov, chief debt negotiator Anatoly Chubais and other top officials.
Russian shares plunged to their lowest levels in more than two years on Thursday as a crisis of investor confidence in the economy reached new depths. Prices recovered on Friday but dealers said trading was too thin to signify an end to fears over the fragile banking system. Meanwhile, the Hong Kong stock market is closed on Monday for a holiday but analysts are predicting a volatile week once trading resumes on Tuesday.
Facing its worst crisis since British rule ended in the middle of last year, the Beijing-backed government poured money into the stock market on Friday to lift the blue-chip Hang Seng index from five-year lows.
The aim was to punish foreign speculators who had been playing off attacks on the Hong Kong dollar, which drove up interest rates, and corresponding falls in the stock market.
The Hong Kong dollar has been pegged to the US dollar since a currency crisis in 1983. It is fixed at HK$7.80 to the US dollar in a currency board system which means the monetary system should be regulated by changes in interest rate levels rather than government intervention.
But analysts fear that rather than deterring the speculators, Friday's intervention might be seen by some as a challenge, encouraging them to renew their attacks on the beleaguered currency.
Hong Kong Chief Secretary Anson Chan Fang On-sang, returning from a two-day visit to Singapore, weighed in with a fresh defence of the government action on Saturday.
"We absolutely don't want to intervene in anyone short-selling the index futures, but we cannot tolerate somebody creating confusion in the foreign exchange market, damaging our economic system, the interests of our businessmen and the public," he said.
The Far East and Russian crises are likely to overshadow a number of other events next week including Bill Clinton's testimony today before a grand jury investigating sex and perjury allegations against him.
Two key monetary policy meetings - the US Federal Open Market Committee Meeting (FOMC) and the Bundesbank's first meeting since the summer recess - also take place this week. But neither central bank is expected to sanction a rate increase given the uncertainty over Asia and the approaching German elections.
