Stock markets brace for testing day

New York Stock Exchange: Shares fell on reopening

Stock markets around the world are tensed for their second day of trading after Wall Street's return to work.

Tokyo's stock market opened higher, buoyed by relief that the worst predictions for Wall Street's first day of trading since the attacks on the World Trade Centre were not realised.

US stock markets dived on Monday, with the benchmark Dow Jones index registering the largest one-day points fall in its history, and the Nasdaq tech stocks index down 6.8%.

But analysts had feared US markets could fall as much as 10%.

Now they will be waiting to see if European markets maintain the steadier mood when they open later.

Rescue package

As Wall Street reopened on Monday, central banks came to the US markets' aid, slashing interest rates faster and further than predicted in a concerted bid to stave off financial panic.

The US Federal Reserve led the way, cutting by half a percent, followed by the European Central Bank and the central banks of Switzerland, Canada and Sweden.

Stock markets, Monday close

Dow Jones
down 7.1%

Nasdaq
down 6.8%

Frankfurt: Dax
up 2.9%

London: FTSE 100
up 2%

Paris: Cac 40
up 2.7%

Tokyo: Nikkei 225,
down 5%

The falls on Wall Street, though sharp, were less drastic than predicted, and the London, Frankfurt and Paris stock markets all closed higher.

In Tokyo on Tuesday morning, the Nikkei index was up 2.64%, or 250.85 points, at 9755.26 at 0115 GMT, reversing the previous day's trend.

"The extent of the fall on Wall Street was in line with expectations," said Yuji Nakamura, chief strategist at Shinko Asset Management.

The dollar had also steadied somewhat against the yen and the euro, trading at 117.81 yen and 92.39 euro.

However, Tokyo analysts forecast nervous trading for the rest of the day as the market waits to see if the Bank of Japan will add its own measures to the global round of central bank intervention. The BoJ begins a two-day meeting on Tuesday.

The falls on Wall Street came after heavy losses on international markets over the last few days, and reflect unease over US economic prospects, and the impact of the attacks on certain key industrial sectors.

No patriotic rally

Some had predicted - and politicians had urged - that investors would stage a patriotic rally on the first day of trading.

US Treasury Secretary Paul O'Neill, who attended the re-opening of the New York Stock Exchange, said he expected investors to "act like Americans" - a call not to engage in panic selling.

Long-term prospects for [US] productivity growth and the economy remain favourable

US Federal Reserve

But fears over possible military retaliation, as well as the gloomy economic prospects for the US economy, kept shares firmly down.

The 7% fall in the Dow Jones was smaller than that seen in the 1987 market crash - but on a points basis, the 684-point plunge was the Dow's most severe in history.

Some sectors performed especially poorly, especially airlines, which saw their shares lose as much as half their value.

Financial companies, which face huge liabilities for their insurance arms, and in some cases enormous clear-up costs at their Manhattan operations, also took a battering.

Media, entertainment and technology shares were also conspicuously weak performers, as they were seen as especially vulnerable to the predicted plunge in US consumer spending.

Better than expected

But the mood was not entirely bleak.

Analysts pointed out that the New York falls were merely an attempt to catch up with heavy losses on global markets since Tuesday.

One indication of the somewhat hopeful sentiment was the fact that European markets all finished in positive territory, with London, Frankfurt and Paris all registering 2-3% gains as Wall Street fell.

An unexpectedly heavy loss in New York would have provoked further falls in Europe.

Central banks rally round

Central bank intervention, which was pushed through more aggressively than predicted, also provided some support.

It is rare for central banks to cut interest rates by half a percentage point - the smaller change of a quarter-point is usually preferred.

It is even more rare for central banks to act in concert to calm markets.

The rate cuts follow other concerted moves last week to pump cash into the banking system; last week, the US, Canadian and European central banks provided $208bn in short-term financing in order to ensure that banks do not run out of money.

Financial policy-makers did their best to lighten market sentiment.

Mr O'Neill said that the share-price falls were predictable, and did not reflect any underlying weakness in the US economy.

In a statement after the rate cut, the Fed said it would "continue to supply unusually large volumes of liquidity to the financial markets ... until more normal market functioning is restored".

And in an attempt to improve sentiment further, it predicted that the "long-term prospects for [US] productivity growth and the economy remain favourable".

Back to work

Workers at Wall Street offices had turned up early to work, testing telecoms and computer systems patched and replaced since last week's atrocity.

With Wall Street subway station closed, and streets still shut to traffic, brokers and analysts negotiated their way to work over temporary electricity cables and past stand-by generators.

The atmosphere at the launch of trading was sombre, with market participants observing two minutes' silence.