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Wednesday, 6 December, 2000, 21:50 GMT
Apple halts stocks rally
Trader at the New York Stock Exchange on Tuesday
Tuesday's gains have yet to be repeated in New York
American stock markets were back in reverse on Wednesday as a profits warning from Apple sent the entire computer sector tumbling.

The upbeat mood which had sent New York's tech-dominated Nasdaq index to a record rise on Tuesday, was nowhere to be seen as American traders returned to work on Wednesday morning.

The rise had come after US central bank chief Alan Greenspan dropped heavy hints that the next move in interest rates might be downwards.

But after the markets closed on Tuesday, computer firm Apple posted a profits warning, to puncture the tech-revival mood.

When trading began on Wednesday its shares slumped 16%, and fellow computer makers IBM, Compaq, Dell and Gateway were all hit.

Downbeat start

Further gloom came with profit downgrades from Bank of America.

America's Dow Jones Industrial Average closed 234.3 points lower at 10,664.4 and the Nasdaq 93.3 points lower at 2,796.5.

The knock-on effect was felt in Europe, where London's earlier gains were erased and the FTSE 100 index closed down 25.7 points at 6,273.3.

Other key European markets had also lost much of their striking early gains.

The Cac 40 index of leading French shares was 9.6 points lower at 5,985.2 and Germany's Dax closed down 14.8 points at 6,622.2.

Asian rally

Tuesday's US rally had earlier cheered Asian stock markets, with heavy buying reported in Seoul, Tokyo and Sydney.

Japan's Nikkei index closed up 194 points or 1.32% at 14,889 points, off its earlier high of 15,109 points, with technology shares such as Sony in strong demand.

In South Korea, the Kospi index's gains were spurred by demand for, among other technology stocks, Samsung Electronics.

Turnaround

On Tuesday the Nasdaq index gained 274 points or 10.48% to close at 2,889.76 on Tuesday - a much needed turnaround for a market that had lost nearly half its value since peaking in early March this year.

Blue chip stocks on the New York Stock Exchange were in bullish mood as well. The Dow Jones Industrial Average, Wall Street's most watched index, gained 338.62 points to 10,898.72 - the third-largest points gain in its history to date.

In addition to the rate cut hints from Mr Greenspan, the markets were also lifted by suggestions that the wrangling over the outcome of the US presidential election may soon end, and by oil prices dropping to a four month low.

Mr Greenspan's speech comes amid growing evidence that the US economy is slowing very significantly from the rapid growth rates recorded in recent years.

'Untoward events'

That earlier super-fast growth was regarded by economists and Mr Greenspan as unsustainable - leading to a series of interest rate rises seeking to put the brakes on the economy before inflation reared its head.

But in a speech to a bankers' organisation in New York Mr Greenspan noted that the slowing of economic growth increased the risk from what he called "untoward events".

Investors welcomed the change of tone as implying that rate cuts are now higher up the Federal Reserve's agenda than further rises.

This has lifted the stock markets because when interest rates are lowered, business costs are lowered so company profits may rise.

This helps companies pay higher dividends to shareholders, while investments that pay interest become less attractive.

Nasdaq records

In recent months, the Nasdaq market had taken a battering, shedding nearly 50% of its value since its peak in early March.

The gains posted on Tuesday were well above previous records.

The previous biggest points gain of the Nasdaq happened on 18 April this year, when it rose 254.41 points. On Tuesday it gained 274 points.

The most recent record for a percentage increase in a single day was set on 30 May this year, when it rose 7.94% - which looks paltry compared to Tuesday's 10.48% gain.

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The Markets: 9:29 UK
FTSE 100 5760.40 -151.7
Dow Jones 11380.99 -119.7
Nasdaq 2243.78 -28.9
FTSE delayed by 15 mins, Dow and Nasdaq by 20 mins
See also:

05 Dec 00 | Business
Greenspan sparks share records
06 Dec 00 | Business
US economy slowing
05 Dec 00 | Business
Weak computer sales hit Apple
15 Nov 00 | Business
US rates stay on hold
25 Jul 00 | Business
Greenspan undecided on rates
05 Dec 00 | Business
Blue chip index sheds tech stocks
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