Wall Street tumble gives world markets the jitters

TRADERS in the London financial markets are bracing themselves for a dramatic collapse in prices tomorrow following a crash on Wall St on Friday. This could set British interest rates back on an upward path after their long decline and deal a blow to the economy and to Conservative election hopes.

London's FT-SE 100 index of leading shares fell sharply by 47.9 points to 3,710.3 on Friday, reflecting Wall St's early decline, but after the European markets closed, Wall St continued to tumble.

"There was frantic panic selling... it was an absolute bloodbath on Wall Street," said Philip Orlando, chief economist at US fund manager Value Line.

Nerves are jangling in markets around the world and London analysts are predicting another 100-point slide at least. Friday's fall on Wall St was the third worst ever and higher in absolute terms than the fall that sparked the catastrophic "Black Monday" stock market crash of October 1987. Friday may have seen another quarter-point cut in British interest rates, but many economists in London are already detecting pressure for interest rate rises later this year.

Others, however, are more sanguine. World markets are seen as far less vulnerable to a big crash than they were in the 1980s, when the speculative bubble was at its most inflated. Pressure in Germany and France, too, points to lower rather than higher interest rate as governments there struggle with high unemployment.

The Wall St fall was prompted, ironically, by good US job figures, which raised fears of higher inflation. This may have been a statistical freak, though the markets will await the next batch of data with trembling hearts.

"I think it tells you more about market psychology than anything else. My guess is this was a rogue number," said Roger Bootle, chief economist at HSBC Midland Bank. "The position in Europe is the opposite. I think UK rates are still coming down."

House price hopes, page 17

Further report, Business page 3