Market jitters plunge ISEQ and FTSE into red

The ISEQ index of Irish shares and London's FTSE 100 Index were mired in the red today as more bad news from the United States kept up the pressure on world markets.

The ISEQ was down 3.17% today, while London’s benchmark index was down nearly 3% to its lowest level this year as investors took in more gloom on Wall Street, where the US’s biggest mortgage lender was under the spotlight.

The Dow Jones Industrial Average opened more than 100 points lower after Countrywide Financial said it had borrowed $11.5bn (€8.6bn) to fund mortgage lending in a credit crunch which has seen smaller rivals collapse.

Countrywide has borrowed the cash from a consortium of 40 banks to meet its needs as lenders take a more cautious approach amid fears over rising default rates.

The firm has been under pressure after Merrill Lynch issued a sell rating on the stock, fuelling worries about the biggest US home lender’s ability to raise cash to secure short-term funds.

The ISEQ and Footsie have been tracking the turmoil in US markets – also hit by weak housing data today – and is now firmly below the 6000 barrier at 5942.6.

In the UK, around £108.9bn (€161.1bn) has been wiped from the value of leading stocks since the close of trading last Wednesday, with the Footsie trading below 6,000 for the first time since March.

US sentiment was hit earlier in the week when retailing giants Wal-Mart and Home Depot issued disappointing profit forecasts.

The Federal Reserve added more cash to the US banking system yesterday, and other central banks have been pouring cash into their banking systems since the end of last week. But the injections have so far failed to ease investor concerns.

Some estimates suggest $300bn (€224bn) of loans could be at risk because of the sub-prime crisis, but at the moment investors do not know the exact scale of the problem.

The resulting credit crunch, as banks increased the cost of lending, forced central banks to pump more money into banking systems to help soothe investor fears over a drying up of credit markets.

Market commentators said there appeared to be no end in sight to the current crisis.

Small investors were urged not to panic, amid warnings that if they cashed in their shares now, they would crystallise their loses.

Instead analysts have advised shareholders to sit tight and ride out the current storm, and remember they were investing for the long term.

Martin Slaney, head of spread betting at GFT Global Markets, said: “What we are witnessing is a rapid unwinding of risk on a global scale.

“The initial jolt from the US sub-prime fears has forced many hedge funds to re-assess their risk profiles, so everything from equities to commodities and high-yielding currencies involved in the so-called yen carry trade are out of favour. Even traditional safe havens such as gold are deemed too risky in this climate.

“In these extremely nervous market conditions, economic fundamentals have gone out of the window and panic selling has set in. The risk aversion and volatility is not likely to disappear for the foreseeable future. The days of easy credit are almost certainly over and the implications of this for everyone from hedge funds to home owners are only now being realised.”