Markets await next move in Iraq crisis

THERE was a surreal calm in the markets yesterday as investors found themselves in the eye of the storm after recent sharp falls and waiting for the impact of President Bush’s State of the Union address.

The ferocious bashing of markets eased yesterday with the FTSE ending the record-breaking run of falling in value every day for eleven days.

IIB Bank chief economist Austin Hughes said that in effect normal trading has ceased in current conditions with incredible uneasiness.

Mr Hughes said that we are on the cusp of a major decision on possible war on Iraq and recent share price falls have factored this into the markets.

Share prices have taken a hammering with over €40bn alone wiped off the value of Irish shares since July of 2001 - over half GNP for a full year.

Over €1,000bn has been wiped off the value of the FTSE since 1999 and there is no respite in sight.

“Rumours are everywhere with talks of exile deals, hidden weapons and so on,” said Mr Hughes.

All the major indices with the exception of two, the Spanish IBEX 35 and the S&P ASX 200 Index in Australia, kept well within a ±1% of their opening price.

A late rally saw the FTSE 100 Index shake off its record-breaking losing streak and close up for the first time in 12 sessions.

Slight gains on Wall Street, and a smattering of bargain hunters, saw the index nudge ahead 9.2 points to 3490.0 by the close of another nervy day.

After sprinting out of the starting blocks the Footsie lost all its early lead, despite a reassuring statement about the health of the UK economy by Downing Street.

Tom Hougaard, trader at spread betting firm City Index, said: “We have to start somewhere and it’s certainty encouraging that we have managed to close in positive territory.

“There is no good news whatsoever in the market at the moment, but perhaps there are people out there who believe they can find some real bargains at these levels.”

Most analysts are likely to remain cautious, however, until the outcome of George W Bush’s State of the Union address in Washington overnight - which could provide an insight into the timing of any military action against Iraq.

European stocks rebounded, gold lost some of its shine and the dollar steadied yesterday as markets nervously looked to President Bush’s State of the Union address for the next move in the Iraq crisis.

Safe-haven government bond prices dipped but oil prices rose after Iraq said it would retaliate against invading US troops “wherever they start their aggression”.

Oil and gas stocks were responsible for more than half of the FTSE 100’s rise, gaining along with crude prices after Iraq threatened possible retaliation against oil producer Kuwait in the event of a war. Among some of the bigger players, BP closed up 1.7%, BG Group added 1.4% and Shell rose 1.1%.