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World markets see slide continue World stock drop hits second week
(about 1 hour later)
Asian and European stocks have fallen on Monday as the global share sell-off entered its second week. The global stock market slump has powered into its second week, pushing the UK's FTSE 100 share index below 6,000 for the first time since October. By midmorning, the FTSE 100 was down 118.8 points, or 1.9%, at 5,997.4. In the past five sessions, the index has had £111bn wiped off its total value.
Japan's Nikkei index closed 3.4% lower - its biggest one-day fall in nine months - while Shanghai's composite index was 3.5% down. The drop mirrored heavy losses in Europe and Asia, where Japan's Nikkei 225 had its worst day since June.
In London, the FTSE 100 was down 86 points, or 1.5%, at 6,031.3 by 0825 GMT, having earlier dipped below 6,000. Investors are dumping stocks because of concerns they are overvalued.
Last week, a slump in Chinese stocks and fears of a slowdown saw the biggest share sell-off in more than four years. "It looks like it's becoming a domino, with one market pulling down the other and I don't know where the domino effect will stop," said Jose Vistan of AB Capital Securities.
French and German markets also slipped in early trading - with the Cac and Dax indexes losing close to 2% each. "You throw away technical and fundamentals out of the window," he explained. "Emotions are the ones driving share prices right now."
In Taiwan shares closed down 3.7% while the main Indian market was 3.6% lower in mid-afternoon trading. With investors getting increasingly jittery, the steep falls on the stock exchanges have started to ripple through to the commodities markets, and especially oil.
Yen impact A barrel of US sweet crude was down by $1.01 a barrel to $60.63, while London's main Brent crude contract lost $1.04 to $61.04.
The Nikkei tumbled 575.68 points to 16,642.25 on Monday, its lowest level since December and the largest single day plunge since June 2006. More weakness?
The fall was largely a result of the continued rise of the yen - which hit its highest rate against the dollar in three months on Monday. The current stock slump was triggered last week by the biggest drop on China's market in a decade.
A strong currency cuts profits of Japanese firms when overseas earnings are brought home - resulting in investors selling shares in exporters such as Toyota Motor and Canon. That fed into fears about the state of the US economy at a time when many investors were questioning whether share prices had risen too far too quickly.
By close of trading on Friday, indexes had tumbled across the US, Europe and Asia. The Dow Jones fell 4.2% during the week and the FTSE 100 lost £80bn, or 5%, in value. Many of the world's top indexes and shares had climbed to levels not seen since the dotcom bubble burst in 2000.
Investors had blamed factors as varied as a new tax in China and the US mortgage market for the decision to dump stocks.
Our short-term scenario is that the markets will continue to show weakness James Chua Phillip Capital Management Graph: the FTSE 100 Q&A: Will markets recover?Our short-term scenario is that the markets will continue to show weakness James Chua Phillip Capital Management Graph: the FTSE 100 Q&A: Will markets recover?
The size of last week's sell-off may have caught investors by surprise, but observers had been warning that a market correction was on the cards. On Monday, Japan's fall was largely a result of the continued rise in the yen - which hit its highest rate against the dollar in three months.
Many of the world's top indexes and shares had climbed back to levels not seen since the dotcom bubble was burst in 2000, fanning fears that they had become overvalued. A strong currency makes Japanese goods more expensive abroad and cuts the profits of Japanese firms when overseas earnings are brought home.
China's Shanghai market - which sparked the sell-off by falling almost 9% on Tuesday, its biggest decline for a decade - has more than doubled in value since the end of 2005. It also means that investors who borrowed yen to take advantage of low interest rates and then put the cash into assets such as equities, would now be looking to close positions and pay off their loans, analysts said.
Leading declines on Monday in Tokyo were exporters such as Toyota Motor and Canon, and the Nikkei closed 3.4%, or 575.68 points, lower at 16,642.25, its lowest level since December and the largest daily plunge since June 2006.
Shanghai's composite index lost 3.5%, Taiwan shares closed down 3.7%, and the main Indian market was almost 4% lower.
In Europe, France's Cac and Germany's Dax indexes also slipped, both losing more than 2%.
Volatility probably will continue as riskier assets are sold, analysts said.Volatility probably will continue as riskier assets are sold, analysts said.
"Our short-term scenario is that the markets will continue to show weakness," said James Chua of Phillip Capital Management."Our short-term scenario is that the markets will continue to show weakness," said James Chua of Phillip Capital Management.
There have been an increasing number of signs that the US economy may have been slowing down more severely than was previously forecast.
On Wednesday, the government said that the US economy grew at a rate of 2.2% in the last three months of 2006, down from a previous estimate of 3.5% and below analysts' forecasts.
Former Federal Reserve chairman Alan Greenspan did little to calm markets when he said last week that there was a possibility that the US economy would go into recession by the end of the year.