Bomb attack hits stocks worldwide

Traders are in a nervous mood

US stocks have fallen after the deadly bomb attacks in Spain were linked to al-Qaeda, raising concerns that there may be more terrorist attacks.

Earlier in the day, markets had tumbled in Europe with investors also raising questions over the strength of the global economic and earnings recovery.

The Dow Jones Industrial Average shed 1.6% in New York, while the S&P 500 slid 1.5% and the Nasdaq lost 1%.

The dollar also was dented, weakening against currencies including the euro.

Turn around

The day had started on a more positive, albeit decidedly unenthusiastic, note as shares ticked higher.

The slim gains faded, however, as evidence emerged that the multiple bomb attacks that have so far claimed 190 lives and injured 1,200 might have been the work of Islamic extremists.

Spanish authorities had at first attributed the killings to the Basque separatist group Eta.

According to Roger Hornett, chief executive of brokerage Theodoor Gilissen, it is less about who did the bombing and more about when and where it might happen next.

"The market's simple interpretation was that if it can happen in Madrid, it can happen again in New York or for that matter in London too," he said.

"It has brought home, rightly or wrongly, the fact that international terrorism continues to be a threat at the start of the 21st century."

Traders had been thinking for a while that equities were getting a bit expensive Greg Niebank, a trader at Deal4free

Share prices were hit harder in Europe than the US, with 2% knocked from Madrid's Ibex index as travel and tourism firms also slumped.

No silver lining

Germany's Dax lost 3.5% while the French Cac 40 shed 3% and the UK's FTSE 100 closed more than 2% lower.

The initial trigger for Europe's falls came on Wednesday, when Wall Street fell after figures showed the US trade deficit at an all-time high.

On Thursday there was encouraging US retail sales and employment news but it was not enough to rally investors.

"These figures have come in line with expectations and adds a little bit more credence to the recovery story, but these numbers are going to get overshadowed by events in Madrid," said David Brown, economist at Bear Stearns investment bank.

"The bomb outrage will heighten geopolitical concerns and intensify safe haven flight out of stocks and into government debt," he said.

Traders in Europe were talking about a readjustment.

"Traders had been thinking for a while that equities were getting a bit expensive so we're just finding fair value once again," said Greg Niebank, a trader at Deal4free.