The arrival of foot-and-mouth disease and the failure of the latest rates cut to steady US markets is very grim news for investors in Irish shares.

With concerns about the US economy and consequent fears for employment in Irish-based US technology firms, confirmation of foot-and-mouth could not have come at a worse time. As shares plummet on international markets due to fears of a US recession and its effect on other economies and on corporate earnings, the market in the Republic has been hit by fears that foot-and-mouth will cut earnings in the food, hotel, tourism and other sectors.

An even bigger concern is that confirmation of the disease could cause a sell-off of Irish shares by international investors fearing that it spells the end of the Irish "good news" story.

The immediate reaction to the foot-and-mouth confirmation was a sell-off of food shares such as Glanbia, Golden Vale and Kerry, as well as tourism shares such as Ryanair and Jurys Doyle. "Even companies unlikely to be affected by foot-and-mouth were dumped in panic selling," one dealer commented. The market was down about 2 per cent in early trading after overnight weakness in the US but dropped more than 3 per cent more on the foot-andmouth announcement.

In addition to the direct impact of foot-and-mouth on meat and diary exports and tourism, an economic dislocation effect would come, for example, from the knock-on effects of the cancellation of events, including falls in sales and advertising.

Reflecting deteriorating conditions Goodbody stockbrokers has cut its economic growth forecast for the year from 8.2 per cent to 6.2 per cent. However, head of research Mr Colin Hunt stressed that, even at that level, the Irish economy will outperform other European countries.

A fall in agricultural exports on an assumption that the export ban will not be confined to Co Louth, and weaker technology and other exports, will cut export growth from 11 per cent to about 8 per cent this year he forecast. In addition, he expects an easing of investment growth by multinationals and reduced domestic consumption as consumers lose confidence and suffer the negative wealth effect of falls in share prices.

But he feels that US interest rates are starting to work and that stock markets could start to show some recovery in three to four months and would be well ahead by the end of the year.

But Mr Pramit Ghose from Hibernian Investment Managers is less optimistic. He believes Irish shares could fall a further 5 or 6 per cent before they hit a bottom. "The economic impact of foot-and-mouth may not be as significant as the psychological impact. But there is no good news there and it will be the end of the year or into next year before we see a turn. There is no fun in getting this right."

At yesterday's 5055.29 close, the ISEQ has fallen 15.5 per cent from its 12-month high of 5,978.13 on February 23rd. Almost all the gains of the second half of 2000 have been wiped out. The index is just 226 points off its 12-month low of 4829.47 hit on June 27th 2000.

Investors can expect continuing volatility in coming months. Some rallies are likely from current low levels but with bears dominating the markets these rallies may be short lived until confidence returns about the fundamentals that underpin performance such as corporate earnings.

International markets are all in trouble as the rush out of technology shares has spread to old economy shares. The recent sharp falls in share prices are likely to push people who decide to save through the Government Special Incentive Savings Scheme towards cash-based funds rather than equity funds.