The uncertainty over the future of President Clinton has led to a heavy fall in the New York stock market, while markets in Latin American dropped sharply last night in panic selling.
The Clinton crisis was just one of the factors which conspired to drive the US stock market and the US dollar down yesterday. Speculation about a cut in US rates and fears over the exposure of US banks to Latin American debt were other factors which contributed to the weakness in the currency and a 3.1 per cent per cent fall in the New York stock market. The Dow Jones index closed at 7615.54, down 249.48. Wall Street was down almost 4.5 per cent at one stage before making a tentative late recovery.
Banking stocks were particularly hard hit as a sell-off in Latin American shares snowballed. In turn, Latin American markets were reacting to Wall Street's weakness and to fears of a flight of international funds from their economies, similar to what happened to many Asian economies over the past year.
Brazilian financial markets plunged to new lows in early trading as a series of emergency measures by the government failed to check massive dollar outflows from Latin America's powerhouse economy.
Brazil's Bovespa index plunged 10 per cent, triggering a circuitbreaker that halted trading for 30 minutes. It subsequently headed even lower - down by 15 per cent - forcing another halt in trading. Other markets in the region were also hit hard. US and other investors are moving their funds out of economies like Brazil which many fear will soon replace the Far East and Russia as the world's major trouble spot.
On Wall Street, traders said the mood was affected by the report sent to Congress by independent prosecutor Mr Kenneth Starr that could lead to impeachment proceedings against the President. The fall on Wall Street had its usual devastating effect on stock markets all over the world. Most of the gains notched up since US Federal Reserve chairman, Mr Alan Greenspan's hint last Friday that US rates might fall were virtually wiped in yesterday's trading.
Falls of more than 3 per cent were commonplace on European markets, with financial shares in particular taking a hammering as more of Europe's top banks revealed heavy losses related to loans exposure in Russia and Latin America.
Frankfurt fell by over 5 per cent with Germany's leading exporters bearing the brunt as hopes that the dollar slide would rebound were dashed. Motor manufacturers BMW and Volkswagen both lost more than 7 per cent in a market, dealers said, was beginning to lose its grip.
Against that background, the 2.8 per cent fall in the Irish market was relatively modest - especially given the 3.5 per cent rise on Wednesday. But dealers say the trend in Irish share prices is very definitely downwards with the US political uncertainty simply compounding the existing volatility in the markets.
