Stock prices fall on allied setbacks

SETBACKS on the battlefield for Anglo-American forces in Iraq were mirrored on world stock exchanges yesterday when stock prices fell after a week of almost unimpaired upward movement.

Unsure about the pace of the war, investors retreated from stock markets and in an about-turn from last week, plunged their money into safe-haven investments like gold and bonds, which rose in price as the price of oil also jumped.

The US dollar was another casualty of the war as the near instantaneous reporting of developments in Iraq reduced confidence among the financial community that this would be a quick war.

Unlike the Gulf War in 1991, which resulted in a sharp sustained rise in share values, investors got the jitters yesterday and ended a near week of steady stock market gains.

In an attempt to restore confidence, US President George W Bush said the war was still young, although it has passed the 100-hour mark the entire duration of the 1991 ground assault that drove Iraqi troops from Kuwait in Desert Storm.

European stocks slumped on concern the war in Iraq may last longer than investors last week expected, delaying an economic recovery.

The Dow Jones Stoxx 50 Index dropped 3.4% to 2229.35 as of 2.36pm in London.

The Stoxx 600 Index shed 3.2%, with insurers, the best performing group since the index reached a six-year low on March 12 declines. Both benchmarks had their biggest weekly gains since September 2001 last week.

Sergio Miguez, managing director of Gesatlantico SA, which oversees $1.6 billion of global assets in Madrid said: "The market view that the war will be short and quick has become more doubtful."

Benchmark indexes fell in all of the 17 western European markets, except Austria. Germany's DAX Index slid 4%, France's CAC 40 lost 3.9%, and Britain's FTSE 100 shed 2.7%.

"I was negative on equities even before the war started," said Miguez.

"The economic and profit situation does not support buying stocks," he said, adding that he is considering selling some of the index-linked securities he bought two weeks ago.

Gold had its biggest gain in more than a month as mounting casualties in the US-led war against Iraq increased demand for the metal as a haven from falling stocks.

The dollar fell against major currencies and gold rose $4 an ounce as events on the battlefields of Iraq showed the toppling of Iraqi President Saddam Hussein could be a messy, long drawn-out affair.

The dollar fell the most against the euro in more than eight months, as analysts speculated the war in Iraq may take longer to resolve, dimming demand for US financial assets.

The dollar fell to its biggest drop against the euro since February 13 and its biggest decline against the yen since February 18. Richard Franulovich, a currency strategist at Westpac Banking Corp believed the currency market "was pricing in a fair degree of optimism the war would be quick and decisive, and the news over the weekend on Iraq questioned that theory."

The dollar weakened to $1.0664 per euro at in New York from $1.0524 late on Friday when it gained to a two-month high of $1.0504 on optimism Saddam Hussein would be ousted quickly. Mark Curran, owner of MC Trading LLC in New York said: "We're following the dollar at the moment. It's a combination of the war casualties and the weaker dollar."

Oil jumped almost a $1 a barrel as the war in the oil-rich nation raged on raising fears that oil supplies could be interrupted and news of substantial production closures in Nigeria because of ethnic unrest in the Niger Delta also boosted prices.