Shares fall amid US economic slowdown fears

London traders are hoping the market will bounce back today after more than £17bn (€25.6bn) was wiped off the value of London shares as fears of an economic slowdown in the US gripped investors.

The FTSE 100 Index lost 71.0 points yesterday to finish at a 10-month low of 4306.3, following the lead of Wall Street which was deep in the red for the second consecutive session.

Analysts talked of a gruelling time ahead for London shares with higher-than-expected retail sales figures in the UK yesterday pointing to another hike in interest rates in August.

HSBC economist John Butler said a 1.1% rise in sales in June indicated the Bank of England’s monetary policy committee “has a lot more tightening left to do”.

Oil prices also showed no sign of weakening and moved above the 41- dollar threshold in New York – despite Opec pledging to boost output capacity by 10% by the end of next year.

But some relief was offered by the currency markets, where the US dollar was trading at a rate of 1.84 against the pound, having started the week closer to the 1.87 mark.

Tom Hougaard, of financial bookmakers City Index, said the big fear for investors was rising inflation at a time when major companies were reporting little or no growth.

Mr Hougaard said: “Investors are saying, ‘Where is the growth coming from? Where is the money going to be made in 2005? I see the markets being very volatile between now and the end of the year.”

High fuel prices would cushion any fall in blue-chip shares in the UK as oil giants Shell and BP make up 17% of the Footsie.

But the London market was still likely to struggle during the second half of the year and could finish as low as 4250, Mr Hougaard said.

Shares in the US could be expected to rally during the build-up to the presidential election, but the Dow was in danger of ending the year at a 14-month low below the 10,000 barrier.