European shares slumped again yesterday, hit by fears of war with Iraq and a stream of weak economic and corporate news.
Global political tensions, already at a high level, moved to a higher plane after Iraq's deputy prime minister Mr Tareq Aziz rejected the unconditional return of United Nations arms inspectors demanded by Washington.
This sent oil prices soaring and added to the gloom, while a mixed set of US data failed to temper fears of a slowdown in the world's biggest economy. "The risk of military action in Iraq feeds uncertainty on the world economic outlook," one market-watcher said.
The market's mood had briefly brightened earlier in the day after the release of stronger-than-expected US retail sales data for August but bad news quickly followed. The forward-looking University of Michigan consumer sentiment index for September came in at 86.2 versus expectations of 87.5, and fell for the fourth straight month.
"This is more evidence that the hitherto buoyant consumer sector is weakening," said Mr Kevin Grice, senior economist at American Express Bank, who added that the chances of an interest rate cut by the US Federal Reserve at its September 24th meeting was now "almost 50-50".
The US economic data left investors in Europe still uncertain as to whether the nascent economic recovery will be sustained. "At the end of the day, the economy is still struggling," said one trader in Paris.
Meanwhile, the prospect of war kept Wall Street under pressure and the Dow Jones index of blue-chip stocks closed 0.8 per cent lower at 8,312.69. But the tech-heavy Nasdaq was up 0.91 per cent at 1,291.36.
"The news on Nasdaq is a little bit more concrete given that Adobe had decent news and the stocks responded well," said Mr Brian Pears, head of equity trading at Victory Capital Management.
"It's one thing to be worried about Iraq or terrorism. It's a totally different thing when one of the leaders of a niche market says things are getting better."
In Dublin, shares fell by 1.5 per cent as they mirrored the international stock market weakness although dealers said volumes were relatively light.
In Europe, stock-heavy insurers were among the hardest hit, sinking in tandem with the market pullback, with Allianz at the helm after the German group stumped up another $750 million (€766 million) to cover possible asbestos-related claims.
Telecom stocks were also bashed after US peer Lucent said its quarterly sales and earnings would be much lower than analysts were expecting while banks were hurt by worries over exposure to the debt-ridden sector.
In London, the FTSE 100 closed 1.9 per cent lower, its third straight weekly loss. Vodafone was among the losers, closing 2.4 per cent lower.
Continental markets also suffered with French shares giving up 2.7 per cent and the German market closing 1.8 per cent lower. - (Additional reporting by Reuters)
