Irish shares lost almost 3 per cent in value yesterday as European markets retreated in tandem with Wall Street on renewed fears over US interest rates, company profits and the Asia crisis.
Shares in London shed some 2.3 per cent, while the indices in Frankfurt and Paris lost around 1.6 and 2.3 per cent respectively.
Top American stocks deepened early losses after the Federal Reserve chairman, Mr Alan Greenspan, said history showed there would be a "significant" stock market correction. He also said Asia's financial crisis showed no signs of improving yet.
"The evidence we have to date shows no evidence of stabilisation," Mr Greenspan told a House of Representatives banking panel during the second day of his Humphrey-Hawkins testimony. "The recent data still exhibit deterioration."
The tone for European shares was set by Wall Street which slid 105 points overnight and lost a further 61.28 points yesterday to close at 9128.91.
On Tuesday, Mr Greenspan said in the first leg of his testimony that if job growth and demand failed to slow, US interest rates may have to rise despite the crisis in Asia.
Wall Street was also dragged down by a sharp drop in Hewlett-Packard, which warned late on Tuesday of disappointing earnings ahead due to continued weakness in Asia and new signs of economic uncertainty in other regions.
The overnight weakness on Wall Street and the resulting weakness in Far Eastern and European markets meant that the Dublin market felt the full brunt of the change in the market's tone, and almost £1.4 billion was wiped off the value of Irish shares as the ISEQ Index closed nearly 3 per cent weaker.
Dealers reported some heavy selling of shares like Bank of Ireland which fell 49 1/2p on the day, while stocks like Smurfit, Independent Newspapers and Waterford Wedgwood continued to suffer form investors' nervousness at their exposure to the Far East and Pacific Rim economies and currencies.
London's FTSE 100 index suffered its biggest single day's points drop since December 19th last, slipping back below the 6,000 level after notching up a record close of 6,179 on Monday. Sentiment was knocked by Mr Greenspan's cautious tone.
German shares fell in line with Wall Street, although traders had few worries the index was on the verge of a serious correction.
Paris stocks plummeted to close down more than 100 points or over 2 per cent as gloom over Mr Greenspan's testimony on the US economy was compounded by the deeper losses on Wall Street.
"We are looking at a long-term correction," said one French broker. "The market is drifting and directionless."
