European stocks slumped to three-month lows early yesterday before recovering some ground late in the day as the US markets staged a modest rally.
Irish shares again performed even more poorly than the general market.
The Iseq index fell as much as 3 per cent, dropping below the 9,000 level for the first time since mid-December. It recovered some ground to close down 1.9 per cent.
The index is down almost 10 per cent since it hit a record high two weeks ago, a decline that has wiped more than €11 billion from the value of Irish shares.
EU commissioner for economic and monetary affairs Joaquin Almunia said yesterday the current market turbulence appeared to be a short-term correction rather than a permanent downturn but the euro zone must remain vigilant to volatility risks. He said a technical correction was not surprising, given strong gains in stock and asset values in recent years.
Rattled investors have been taking a sceptical view since the initial declines prompted by a 9 per cent drop in Chinese markets at the start of last week. "Any news that isn't extremely positive is being viewed as negative," said one Dublin trader, adding that there is little that Ireland itself can do about it.
Concerns about global economic growth, a possible recession in the US and the outlook for corporate profits are plaguing investors and cautiousness is prevailing.
The sell-off is also being aggravated by the activities of speculators who had borrowed large amounts of Japanese yen for investment purposes and are now having to liquidate their positions or face big losses as the value of the yen rises.
"On the one hand, markets have become more worried about the potential for near-term recession in the US and on the other hand, the stronger than expected US consumer price inflation feedback for January has provoked worries that stubborn inflation will reduce the Fed's scope to cut rates if the economy does in fact prove weaker than expected," NCB said in a note to investors.
In Britain, the FTSE fell below 6,000 for the first time since October yesterday, before recovering slightly to close down 0.9 per cent, at 6,058.7.
Elsewhere in Europe shares were also down, with the FTSE Eurofirst 300 index of top European shares closing lower for a fifth straight session. It was down 1.2 per cent, bringing its decline over the past five sessions to 6.7 per cent.
Paris's Cac-40 meanwhile shed 0.7 per cent, while Frankfurt's Dax lost 1 per cent. With investors getting increasingly jittery, the steep falls on the stock markets have also started to ripple through to commodities, and a further decline in the price of oil yesterday weighed heavily on energy stocks in Europe.
In the US markets struggled for direction after opening about 1 per cent lower.
In Ireland some dealers persevered with the line that the Irish story was fundamentally a good one and that this was just a correction prompted by prices rising a little too high a little too fast.
Others meanwhile attributed Ireland's negative outperformance to more local concerns, pointing to mounting evidence of a slowdown in the housing sector. - (Additional reporting Reuters)
