Speculation that another bout of nervousness on Far Eastern stock markets would trigger a wave of selling on international markets proved to be unfounded yesterday, although markets were generally weaker, with many investors reluctant to take positions ahead of a decision by the US Federal Reserve on interest rates.
As it transpired, the Fed's Open Markets Committee did not produce any surprises and left US interest rates unchanged.
Industry observers believe that growth in the US economy is already under threat from the difficulties in the Far East and that there was no need to tighten monetary conditions to take the steam out of the American economy.
But while stock markets in Europe and North America managed to confine their losses to around 2 per cent or less, markets in some of the emerging economies - particularly South America - took a pounding.
The Sao Paolo stock market fell over 10 per cent in panic selling, leading to a suspension in trading. This collapse in Brazil in turn led to sharp falls in other South American markets.
In New York, the Dow Jones initially opened down 1.5 per cent, but subsequently regained ground after the initial burst of selling. Ahead of the announcement of the outcome of the Fed meeting on interest rates, the Dow was down 60 points or less than one per cent. After the announcement that the Fed was leaving rates unchanged, the Dow closed down 157.41 on 7401.32, a fall of 2.08 per cent on the day on disappointment over a lack of a market rally in the wake of the FOMC announcement.
Earlier, the Tokyo stock market fell to its lowest level for more than two years, as the yen's slide against the dollar sparked concerns among overseas investors about the value of their yen-denominated assets.
The Nikkei index of the leading 225 stocks fell 2.7 per cent, while in Hong Kong, the Hang Seng continued its roller-coaster ride, falling almost 4 per cent on worries over interest rates and the weakness in Tokyo.
In Europe, the London market fell 1.5 per cent to the levels of last June on the resumed selling in European markets.
Other European markets were also lower, with Frankfurt down 2 per cent while the Irish market closed down over 1 per cent.
