A DAY after $1,000 billion was briefly wiped off the market value of US equities, traders were trying to work out what caused shares to plunge and rebound within 20 minutes.

“We still don’t know what was the initiating signal for the trading activity we saw on Thursday,” said Jeff Wecker, chief executive, Lime Brokerage. “It may have been an error that created follow-through selling. The verdict is still out.”

Traders were quick to blame an incorrect sell order that confused “billions” for “millions”, but no clear trigger for the sell-off has been identified by regulators.

What was clear was the ferocity of the fall. Just before 2.40pm on Thursday, the SP 500 index, the market’s benchmark, fell from 1,120 and inside six minutes bottomed at 1,065.79, a slide of nearly 5 per cent. By 3pm the market was moving above 1,120, although still down 4 per cent on the day before settling 3.2 per cent lower.

Traders said the day got off to a gloomy start, with fears that Greece could default on its debt weighing down prices.

When the plunge came, traders said it was exacerbated by computers that post prices and execute trades in microseconds. Such trading accounts for the bulk of volume in US equity markets and it reinforced a move that saw some stocks trade for a penny or less.

A US House of Representatives panel will hold a hearing about the event on Tuesday. – (Copyright The Financial Times Limited 2010)