US shares shake off WorldCom fears

The blue-chip Dow Jones industrial average, which had slid 2.0% in early trading, recovered to close only a fraction lower.

Wednesday's markets
Frankfurt: Dax
-2.5%
London: FTSE
-2.2%
New York: Dow
-0.1%
New York, Nasdaq
-0.4%
Paris: Cac -1.7%
Tokyo: Nikkei
-4.0%

The Nasdaq, on which WorldCom and many fellow technology giants are listed, ended higher, after losing 3.5%.

The recovery came too late to save European and Japanese markets which, fearing severe fallout from the WorldCom scandal, had closed sharply lower.

London's FTSE 100 share index stood 188 points lower at one stage, within an ace of the five-year lows hit after the 11 September attacks.

Observers credited bargain hunting for the Wall Street revival.

"When there are dislocations to the downside, there are value buyers," said David Memmott, at Morgan Stanley.

"Is it cheap enough? I don't know. But there are a lot of companies that are excellent companies and they are getting sucked down by the marketplace."

Audit concerns

Investors had feared that the WorldCom debacle, in which profits between January 2001 and March 2002 were inflated by $3.8bn (£2.5bn), would stoke fears over the state of corporate accounting in the US.

December's collapse of Enron, where accounting concerns were also raised, has raised investor sensitivity to the issue.

"You walk into the kitchen, and you see a cockroach - you are pretty confident that it is not the only one around," said John Hendricks, a vice-president at State Street Global Markets.

"This is the theme that has been hanging over the equity markets in general."

'Final blow'

Nomura, the Japanese investment bank, was even more scathing.

WorldCom, it said, had "delivered the final blow to trust in the US equity market".

"WorldCom is a timely reminder that Enronitis was a systemic problem," Nomura economist Anais Faraj said.

"Even though the markets were never going to go onwards and upwards for ever, the US markets had priced in perpetual growth," he told BBC News Online.

"Basically, the US market is dead now."

Falls to come?

The Dow has already fallen more than 10% since mid-May as disappointing corporate profits - particularly in tech firms - the slide in the value of the dollar and lingering political concerns over the Middle East depressed sentiment.

And some analysts argued that Wednesday's recovery did not, as many have thought, signal a new floor for US stock indices.

"Valuations are still high," said Richard Dickson, technical analyst at Hilliard Lyons in Kentucky.

"And, you have a perception that corporate America is not being straight with investors, and that the point of accounting is to hide rather than divulge."