POSITIVE SENTIMENT on European stock markets following the cut in US interest rates didn't last for long yesterday, as rumours of funding problems at major financial institutions prompted sellers to come back into the market.
Tension on the Dublin stock market remained high, with the fallout from the financial sector's credit chaos exacerbated by a profit warning from UK airline Easyjet, which sent Ryanair's share price tumbling 8 per cent.
After another dismal day, the Iseq index of Irish shares closed down 1 per cent, with further volatile movements in the share price of Anglo Irish Bank.
Independent News & Media was another big faller on the Dublin market, dropping 6 per cent, with dealers attributing losses to the impact of a recession on advertising, poor sentiment for media stocks and its expected exit from a high-yield Dow Jones dividend fund after the close of trade today.
Globally, uncertainty continued to rock markets as rumours of further casualties in the financial sector offset another encouraging set of results from a US bank and positive news on the housing front.
There was plenty of debate about the decision of the US central bank, the Federal Reserve, to cut interest rates by 75 basis points on Tuesday, rather than by a full percentage point.
US and European equity markets struggled to build on Tuesday's hefty gains, in spite of robust figures from Morgan Stanley and news regulators had eased capital requirements for home finance companies Fannie Mae and Freddie Mac, allowing them to inject more money into the mortgage market.
Steep losses for UK banks in early trade prompted UK financial authorities to issue a statement declaring they were not aware of problems at any bank.
But Asian stocks rallied across the board, with the Nikkei 225 Average climbing 2.5 per cent, Hong Kong 2.3 per cent and Sydney 4 per cent. Even Shanghai managed to break a five-day losing streak as it gained 2.5 per cent.
Peter Oppenheimer at Goldman Sachs said he believed the "credit clouds" were beginning to clear.
"Supportive policy actions by the Fed, in terms of both short-term funding provision and interest rate policy, should help foster stability in the credit markets going forward," he said.
But there was no sign of a let-up in money market strains as interbank lending rates continued to rise, while government bonds continued to benefit from uncertainty and volatility in other asset prices.
In the currency markets, the dollar came under renewed pressure against the yen as an overnight bounce against the Japanese unit following the Fed rate cut ran out of steam. Sterling dropped sharply as rumours that a UK bank - HBOS - was in trouble were compounded by increased expectations for near-term interest rate cuts by the Bank of England.
Commodities fell sharply as funds reduced their risk, with gold retreating below the $1,000-an-ounce level and silver sliding to a three-week low.
Oil fell sharply as weekly US data showed clear signs of weakening demand.
- (Additional reporting by Financial Times service)
