Worries of a long war send stocks tumbling

Stocks tumbled, the dollar suffered and bonds rallied yesterday as investors worried that the war in Iraq could drag on for months, and tough fighting over the weekend failed to convince them otherwise.

World oil prices climbed as fear of shortages due to the battle in Iraq were compounded by pre-election violence in key crude supplier Nigeria, where political unrest and port closures have slashed oil output by 40 per cent.

Wall Street hoped for the best but braced itself for the worst, including the spectre of a renewed global recession and slumping corporate profits as a result of the war.

The Dow Jones Industrial Average closed 1.89 per cent lower at 7,992.13 while the Nasdaq finished down 2.1 per cent at 1,340.78.

The Dublin market continued to hold its head high among its continental counterparts, limiting losses to slightly more than 1 per cent.

Dealers were pessimistic however, predicting that sustained pressure on shares in London and New York would soon see Irish stocks testing new lows. "This market is going nowhere but down," said one Dublin dealer.

Markets across the rest of Europe were led down by volatile insurers such as Munich Re, which suffered because of its exposure to tumbling equities.

The FTSE Eurotop 300 index of pan-European blue-chips ended down 3.6 per cent at 743.70 points. That left the benchmark more than 13 per cent weaker on the quarter.

As investors came to grips with the perils of military action, they piled into safe-haven investments such as bonds and gold, prompting a rally in US treasuries.

"The 24-hour coverage of the war news is having its way on people's psyche, and with every little story getting a headline, we're being led to believe the war will be harder and longer than expected and that it will be hard on the economy," said Mr James Caron, fixed-income strategist at Merrill Lynch in New York. "That's making stocks go lower and making bonds look more appealing."

The possibility that the war would drag on for at least another month spelled trouble for the dollar, which fell to its lowest level in two weeks against major currencies. The euro reached $1.09 in early US trading, four cents above the two-month low it hit at the start of the conflict and up a full percentage point from its previous US close.

In the oil markets, prices rose as violence in Nigeria spread to the oil-rich Port Harcourt region and US and Iraqi troops battled south of Baghdad in the 12th day of war. Benchmark Brent climbed 86 cents to $27.21 per barrel, while US crude futures increased 54 cents to $30.70.

Additional reporting : Reuters