US holiday offers Iseq no respite as another €0.5bn lost

The Thanksgiving holiday in the US gave global financial markets some respite from volatility yesterday, but the festive cheer did not extend to the Irish stock market, which saw a further half a billion euro wiped from the value of Irish shares, writes Laura Slattery.

Fears of a recession in the US economy have sent the Iseq index plunging all week, with losses of more than €8.6 billion in the value of the listed companies.

With many of its largest stocks exposed to the slowing Irish housing market and the US economy, the Iseq has been much harder hit than other indices and has now lost about a third of its value since January.

While the FTSE 100 in London ended the day's trading up 1.4 per cent, the Iseq fell 0.85 per cent yesterday. The sell-off of shares was once again mostly concentrated among the banks. Bank of Ireland was the heaviest faller, with its share price closing down 3 per cent at €8.90. AIB, Irish Life & Permanent and Anglo Irish Bank also lost ground.

Although some housing-related stocks made gains, dealers said their share prices were coming from a very low base and were unlikely to be able to sustain their progress.

Elsewhere, a semblance of calm returned to financial markets, although there was no relief for the ailing dollar as it set fresh record lows against the euro.

The search for havens in the current financial storm has led to an intense government bond market rally. This has pushed benchmark US Treasury yields to levels not seen in three years, and the spread between the 10-year and two-year notes to the widest point in almost two years.

The closure of the Treasury market yesterday left other benchmark bonds flat as market participants contemplated the next move by the US Federal Reserve. Most expect the US central bank to cut rates by another 25 basis points in December, despite efforts by the Fed to calm expectations by saying it was still monitoring economic data, and last month's cut was "a close call".

The minutes of the last Fed and Bank of England policy meetings did not provide a clear indication of the likely outcome of their December gatherings, but growing signs of economic slowdown point to cuts, despite the inflationary impact of high oil prices. Oil slipped below $97 a barrel yesterday, after falling just shy of the $100 milestone the previous session, on hopes of greater Opec supplies as the market continued to watch the tumbling US dollar.

Asian equities fared badly yesterday, reacting to Wednesday's sharp losses across Europe and the US. In a fresh sign that the bubble in Chinese stocks might finally be deflating, China's Shanghai Composite was undermined by fears about slowing US growth and slumped 4.4 per cent to 4,984.16, its first close below 5,000 in three months. Hong Kong was hit by similar fears and fell 2.3 per cent to 26,004.92. - (Additional reporting: Financial Times service)