Nervous time as trading resumes

Friday was a good day, but the cheer may not last.

Stock market traders are getting ready for more tense trading sessions this week, with many expecting falls in share prices to resume despite the rebound in most markets on Friday.

US markets close on Friday

US Dow:
9,509.59
up 1.2%

US Nasdaq:
1,928
up 1.6%

The widespread worries that the economic slowdown in the US will spread to the rest of the world have not gone away.

As the financial year is coming to an end, a string of new warnings are expected from companies who have seen their profits fall sharply since Christmas.

But there may be some good news ahead. Many traders have high hopes of a cut in interest rates when the European Central Bank (ECB) meets on Thursday.

Japan

In Asia, Japan's stock market is expected to rise as Tokyo traders react to the positive close in New York on Friday.

European markets, Friday close

London's FTSE 100:
5,402
Up 1.65%

Paris Cac-40:
4,951
Up 2.6%

Frankfurt Dax:
5,544
Up 2.9%

Foreign investors who had pulled out during the recent economic crisis are also expected to return following last week's interest cut by the Bank of Japan.

Traders' sentiment will be influenced by a quarterly Tankan report on business confidence, due out on Monday.

Hong Kong and Australia

Elsewhere in Asia, Hong Kong and Australia closed lower on Friday, ahead of the notable rises in share prices seen in Europe and the US.

There is much uncertainty about whether these markets will rise as they react to Friday's firmer markets in Europe and the US.

Or whether they will instead be influenced by the pessimism which retains a tight grip on traders' psyche in other stock markets.

European markets

In Europe there is an overwhelming sense that the worst is yet to come on Wall Street.

Hong Kong closed lower on Friday.

But an anticipated cut in interest rates by the ECB may bring some cheer to a market that is otherwise depressed about the situation in the US.

However, comments by Ernst Welteke, the president of Germany's central bank, the Bundesbank, and a board member of the European Central Bank (ECB) have done little to boost confidence.

"The Central Bank is unable to stabilise [share] prices. It does not have the necessary tools," he said on German radio.

Similar comments were made recently by the Federal Reserve chairman Allan Greenspan who said he had other concerns than share values.

Some sceptics fear that Friday's recovery will be shortlived.

Regardless of why central bankers reduce interest rates, analysts agree that rate cuts tend to boost share prices.

However, last week's rate cut in the US failed to do so.

Most say this was because the cut was too small, though some saw it as a sign that Mr Greenspan feared a recession and cut rates as a panic measure.

US markets

Share prices in New York rose on Friday, but they still ended the week below where it started, with analysts warning of further falls when trading resumes on Monday.

"Let's not mistake this for a beginning of a bull market move," said Avatar Associates' Charles White.

Traders describe markets that charge ahead as bull markets, while markets where pessimistic investors turn shy and try to hide are described as bear markets.

A 360 points rise caused cheer in Japan on Friday.

The bears have ruled for weeks in New York, and there are few signs beyond Friday's firmer close that this is about to change.

Throughout the first quarter of 2001, high technology sector companies have been warning investors that their earnings will be lower than they had predicted earlier because the economic slowdown is beginning to bite.

The wave of earnings and profit warnings is expected to gain momentum in the next couple of weeks as the financial year comes to an end.

Making matters worse is the way US consumers' confidence tends to be hit by falls in share prices, and as they stop spending because they worry about the future, companies' earnings fall.

It is a vicious circle, but one that could be broken if investors decide that shares are now undervalued because excessive pessimism has driven their prices to low.

But few analysts believe that is about to happen.