Stocks across Europe suffered their biggest single-day losses since September 2002 yesterday, with more than €180 billion wiped off blue-chips.
The Irish market failed to escape the gloom, losing close to €1.2 billion as stocks declined across all sectors.
"It's a bit of a bloodbath," said one Dublin dealer last night. The Iseq finished almost 1.6 per cent weaker, with afternoon trading bringing the bulk of the losses after US markets opened sharply lower.
The catalyst for the declines was stronger-than-expected US inflation, which rekindled expectations that the Federal Reserve will keep raising interest rates.
US shares fell so sharply that the New York Stock Exchange imposed trading curbs for the first time in more than four months.
US Treasury debt prices tumbled, with the yield on the benchmark 10-year Treasury Note rising by its greatest margin in more than two weeks.
US interest rate futures showed the market believed the probability of a Fed rate rise in June had risen to 54 per cent from 38 per cent on Tuesday. Headline US consumer inflation was 0.6 per cent in April, above the expected 0.5 per cent, due mostly to soaring petrol prices. Core inflation excluding volatile food and energy was 0.3 per cent, topping forecasts for 0.2 per cent.
"There is concern that interest rates will continue to move higher and that higher energy prices will deteriorate consumers' discretionary income spending," said Scott Fullman, director of investment strategy at Hapoalim Securities.
The dollar rebounded, however, as markets took profits in currencies such as the euro and sterling. The US currency extended its gains after the French finance minister said that "everything" must be done to prevent the euro from strengthening too much against the greenback.
Earlier, European stocks fell broadly, with the FTSEurofirst index of 300 regional blue-chips suffering its biggest one-day point fall since September 2002. The index closed down 2.8 per cent at 1,310.01 to notch their lowest closing level since late January.
Analysts wondered if the widespread negative trend was an overreaction to the inflation numbers or part of a prolonged correction.
By the time markets were closing in Europe, US benchmark stock indexes were all sharply lower. The Dow Jones industrial average was down 156.89 points, or 1.37 per cent, at 11,263.00. The Standard & Poor's 500 Index was down 14.72 points, or 1.14 per cent, at 1,277.36.
The Nasdaq Composite Index was down 23.42 points, or 1.05 per cent, at 2,205.71.
Oil prices fell more than 1.4 per cent in New York trading after weekly inventory data was generally in line with market expectations, failing to give crude oil bulls a reason to reverse the recent downward trend in oil prices.
Gold reversed earlier gains on the day and was back below $700 an ounce.
