War fears fuel global stocks slide
LONDON, England (CNN) -- Billions were knocked off the value of investments worldwide as markets slid further on worries over a possible war with Iraq and a surprise missile test by North Korea.
European shares reeled to fresh six-year lows on Tuesday afternoon, knocked further downwards by big dips in UK insurer Prudential and German drug firm Bayer shares, and news of a slump in the U.S. Consumer Confidence index.
That report showed U.S. consumer confidence fell an unexpectedly sharp 15 points in February to its lowest level since October 1993 as Americans fretted about weak stock prices, rising oil prices and the increasing threat of war with Iraq.
"It's a big drop, a very substantial drop," Hugh Johnson, chief investment officer at First Albany Corp., told Reuters. "The magnitude of the decline is a surprise."
Stocks had already been in a downward spiral after news North Korea fired an anti-ship cruise missile into the Sea of Japan, apparently during a military training exercise. (N. Korea tests missile)
The launch worsened geopolitical tensions as the United States and Britain scrambled for U.N. votes to back a U.S. Security Council resolution declaring Iraq passed up its "final opportunity" to disarm. (Latest Iraq news)
First to be hit were the Asian markets, with the main South Korean stocks index down 3.9 percent and the Japanese Nikkei down 2.4 percent.
The knock-on effect was then felt in Europe. At 1513 GMT, the FTSE Eurotop 300 index was down three percent at 753 points, well below the six-year close of February 13 at 769.54 points.
The FTSE closed 2.34 percent down at 3,615 and the Paris CAC-40 was skirting a five year low, down 3.67 percent at 2,683.37. Frankfurt's DAX was down 2,468 points by 1620 GMT after earlier scraping 2,448 points, the lowest level since July 25, 1996 and more than 70 percent below its March 2000 life-high.
In the U.S., the blue-chip Dow Jones industrial average skidded 133 points, or 1.68 percent, to 7,726 in early trading. The technology based Nasdaq Composite Index dropped 25 points, or 1.90 percent, to 1,297, after losing more than 2 percent minutes earlier.
"The U.S. economy is struggling against two headwinds in the shape of higher geopolitical risk because of the Iraq situation and higher energy costs because of high oil prices, and that's filtering down and hurting consumer sentiment," Kevin Grice, senior economist at American Express Bank, told Reuters.
"The data suggests the pickup we saw in consumer spending in December and January will ease off in February/March."
Shares in Prudential (PRU) dropped 17.6 percent on fear it will stop raising its dividend. Like other insurers, Prudential has seen the value of its equity investment undermined by stock market falls. (Full story)
"If European companies start to cut dividend yields this could start to hold the market back,'' Steve Barrow, a currency strategist at Bear Stearns, told Reuters. "The dividend yield cut story is just another excuse for investors to sell stocks.''
Elsewhere in Europe, revelations of accounting irregularities at Dutch retailer Ahold continued to spook investors.The stock closed at 3.27 euros, down 8.9 percent on the day.
Several French traders said this was triggering fresh fears on groups believed to have complex financial structures like Suez and Vivendi Universal. Vivendi sank 12.13 percent and Suez 10.12 percent.
Switzerland's SMI index was down 2.04 percent and Credit Suisse Group, Switzerland's second-largest bank, fell 3.2 percent in earlier trading to 26.15 euros in Zurich. The bank posted a full-year loss of 3.3 billion Swiss francs ($2.4 billion) and said it would cut 1,250 jobs to restore profitability. (Full story)
Frankfurt continued to come under pressure from Bayer(BAY), which saw its stock tumble 15 percent on top of 10 percent on Monday after The New York Times said senior executives at the drug company knew its cholesterol drug had problems long before it was withdrawn.
The company's Baycol drug has been linked to the death of about 100 people.