The Nasdaq Composite index hit a new six-year low during early trading yesterday as technology stocks were dragged down by further grim corporate news and evidence that the US economy had taken a turn for the worse.

US stocks were also affected by a sharp sell-off in Europe, sparked by the uncertain outcome of the German election.

The Nasdaq Composite Index lost 2.96 per cent, to end at 1,184.97, closing below 1,200 for the first time since September 1996. The Dow Jones Industrial Average slid 1.43 per cent, to 7,872.08.

The ISEQ closed at 4010, a fall of 2.3 per cent, while in London the FTSE 100 finished down 3.1 per cent, at a six-year low of 3,739.4.

Almost all European bourses suffered hefty losses, with Germany's Xetra Dax index down almost 5 per cent to break through the 3,000 mark for the first time since December 1996.

In the US, stocks reacted badly to figures from the Conference Board, a New York business research group, which said its index of leading economic indicators fell for the third straight month in a row in August to its lowest level this year. It dipped by 0.2 per cent last month to 111.8, matching January's low.

Coming ahead of today's meeting of the Federal Reserve committee that sets interest rates, the news reinforced concerns among many investors that business conditions in the US would get worse before they get better.

The decline was led by components registering a rise in demand for unemployment benefits, a decline in consumer expectations and a drop in orders to US factories for both consumer goods and business equipment. In all, seven of the index's 10 components fell last month.

Stocks had already opened lower but the fall accelerated after the data was announced. The main indices were down more than 2 per cent by early afternoon, extending weeks of sharp declines below post-September 11th lows, with one economist remarking that investors were trading "as if the world is coming apart at the seams".

Investors are also nervous that US firms will take advantage of the last week before the quarterly earnings period to issue profit warnings.

In Europe, traders said the market was depressed that Chancellor Gerhard Schröder's Social Democrat-Green coalition was likely to be hamstrung in the foreseeable future by its narrow victory in the weekend elections.

After the frantic trading of last Friday's "perfect storm" in derivatives and the cash market it was a return to "normal" conditions in London's equity market yesterday. After a bright opening, triggered by Wall Street's reasonably encouraging close on Friday, the FTSE 100 quickly faltered as sellers emerged, and headed downwards, gathering momentum as it did so. It was driven down even harder in the afternoon by another steep decline on Wall Street.

Dealers said the London market's latest tumble was a reflection of the widespread fears that the recent spate of profit warnings and poor results, from both sides of the Atlantic, would gather pace as the US third-quarter confession season unfolds.

The oil price hit its high point for the year when prices on the New York Mercantile Exchange broke through the $30-a-barrel mark and yields on US Treasury bonds fell to 40-year lows.

The jump in oil prices was put down to Iraq saying it would not accept any new resolutions from the United Nations.

The statement marked a shift in policy from last week when Baghdad officials said it would allow UN weapons inspectors to return "without conditions".- (Financial Times Service)