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Last Updated: Thursday, 1 March 2007, 21:56 GMT
US follows stock market sell-off
US traders
US markets are falling despite positive comments from the Fed
World shares have dropped for a third day on concerns about economic growth and the outlook for corporate profits.

A large slide in Europe and Asia was compounded by a drop on US indexes. The Dow Jones and S&P 500 indexes fell 0.3%, while the Nasdaq lost 0.5%.

London's FTSE 100 index closed 0.9% lower. It has shed 5% in three days, wiping more than 80bn of its value.

The global sell-off was triggered by fears of a new tax in China on Tuesday, and has now spread to wider issues.

Shares fell 9% in Shanghai on Tuesday, their biggest daily reverse in 10 years, and dropped a further 87.99 points on Thursday, closing 2.9% lower.

On Thursday, Germany's Dax and France's Cac both fell 1.1%. Earlier in the day, Japan's Nikkei 225 index had closed 0.9% lower, while Hong Kong's Hang Seng slipped 1.6%.

Spreading out

Since Tuesday and China's tax worries, investors have become more concerned about the state of the US economy and strength of the mortgage market.

On Wednesday, figures from the US Commerce Department showed that the US economy grew at a slower-than-expected pace of 2.2% in the last three months of 2006.

Investors are still wondering if the storm is actually over or not
Masatoshi Sato, Mizuho Investors Securities

Other figures showed that spending on new home building fell 19.1% during the quarter, the sharpest drop since early 1991, adding to worries over the state of the housing market in the world's largest economy.

"The biggest risk in the next few weeks is likely to come from the US data front and developments in the mortgage and housing markets," said analysts at JP Morgan Chase.

Losses in the US were trimmed slightly thanks to good manufacturing data that helped allay some of investors' fears but it was not enough to turn the market around.

"Right now, everything and anything is viewed in a negative light," said stock analyst Dick Green. "It will take a while for the fears to calm down."

Heady heights

At the same time, investors are questioning whether stock prices have climbed too high, too quickly.

FTSE 100 graph

A number of the world's main indexes have broken records recently, and analysts said that corporate earnings may not be good enough to underpin the gains.

It is not unusual for stock markets to have a significant correction, and then go on to even higher levels.

Last May, the UK's FTSE lost more than 9% in three weeks, before recovering and surging to its highest level in more than six years in February, 2007.

"Investors are still wondering if the storm is actually over or not," said Masatoshi Sato, a senior strategist at Mizuho Investors Securities.

"Aftershocks in some markets, where prices are overvalued, may be seen from now on. Volatile and sensitive trading is likely to continue at least until mid-March," he added.


MARKET DATA - 11:36 UK

FTSE 100
5429.64up
23.70 0.44%
Dax
5733.05up
19.54 0.34%
Cac 40
3784.02up
14.48 0.38%
Dow Jones
10403.79up
78.53 0.76%
Nasdaq
2273.57up
35.31 1.58%
S&P 500
1115.71up
11.22 1.02%
BBC Global 30
5707.15up
20.65 0.36%
Data delayed by at least 15 minutes

SEE ALSO
Share sale knocks Chinese market
27 Feb 07 |  Business
China's trade surplus jumps 67%
12 Feb 07 |  Business
China economy records huge growth
25 Jan 07 |  Business

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