Stocks, dollar fall on reprisal fears
( 2001-09-15 09:15) (7)
European stocks tumbled and the dollar fell on Friday, ending an unforgettable week on a note of foreboding as US stocks prepared to resume trading on Monday, only blocks away from the wreckage of the World Trade Center.
Safe-haven assets, like the Swiss franc, gold and US Treasury securities rose, as anxiety gripped markets about possible US military strikes in retaliation for Tuesday's attacks by hijacked commercial jets on the World Trade Center and the Pentagon, in which thousands are feared killed.
European shares slumped to near three-year lows as investors bailed out, fearing a slide on Wall Street on Monday.
"You are seeing people marking shares down ahead of the weekend and Wall Street reopening on Monday," said fund manager John Hatherly of M&G in London.
"There are so many imponderables - we are batting in the dark."
Toronto stocks -- the only North American market open -- tumbled to their lowest level in two years.
The dollar tumbled to its lowest levels in more than six months against European currencies and the yen.
The Swiss franc set a record high against the euro, Europe's single currency, while US bond yields, which move in the opposite direction to prices, fell to historic lows.
WARNING OF REVENGE
The markets fell as Taliban leaders in Afghanistan warned there would be revenge "by other means" if the United States attacked their country for the air assaults on New York and the Pentagon outside Washington. A prime suspect for masterminding the attacks is Saudi-born dissident Osama bin Laden, who lives in Afghanistan.
Fund managers and traders said Wall Street was set to open down on Monday, but losses may be contained to about 5 percent.
"We are not anticipating a massive collapse on Monday," said Peter Lewis, head of global program trading at SG Securities. "But there could then be a decline as people start to work out what the economic consequences are from all this."
The Eurotop 300 index of European blue chips ended off 5 percent at 1,078.57 points, its weakest close since November 1998. The benchmark was down 9 percent for the week, with almost all the fall coming after the US attacks as their enormity sank in as the week wore on.
SOMBER MOOD
The mood in Europe's financial centers remained somber, with the region falling silent for three minutes mid-morning to mourn those who died in the attacks on New York's World Trade Center and the Pentagon near Washington.
Dealers said markets were also dogged by uncertainty about when the expected US response to the terror attacks will come. The US Senate voted to back reprisals and the US Defense Department called up 35,000 reserve troops.
In New York, equity markets were idle for a fourth day with Wall Street's work force battling numbing sadness.
"I think a good part of the Wall Street community is emotionally spent," said Rick Meckler, president of investment firm Liberty View in Jersey City, N.J., which is located across the Hudson River from the former World Trade Center.
The New York Stock Exchange, Nasdaq and American Stock Exchange assured investors they would reopen on Monday at 9:30 a.m. (1330 GMT) if a slew of equipment tests over the weekend are successful.
Most strategists predicted a see-saw start, with investors caught in a tug-of-war between their emotions and their@prosaic wish to make money.
FED RATE CUT
Speculation mounted that the US Federal Reserve might slash interest rates for the eighth time this year as early as Monday, to lift the faltering economy.
US bond prices rose on Friday, sending yields on two-year notes to historic lows amid the conviction that the world was entering a period of heightened tension boosted investor demand for a safe harbor in US Treasuries.
"Clearly foreign investors are freaking out and that shows up in the dollar breaking down and is also showing up in people selling stocks, bidding up gold and selling the dollar," said Peter McTeague, Treasury market strategist at Greenwich Capital Markets.
Two-year notes were priced at 101-11/32, up 3/32, yielding 2.91 percent. Five-year notes were up 19/32 to 103-12/32, yielding 3.83 percent. Ten-year notes were priced at 103-7/32, up 11/32, yielding 4.59 percent.
Thirty-year bonds were priced at 99-30/32, up 6/32, to yield 5.38 percent.
The dollar fell to six-month lows against the euro but had steadied around 92 cents, down a full percent from the previous US close. The greenback also hit six-month lows under 117 yen on Friday, and was trading around 117.25 yen JPY; later, down more than 1.25 percent on the day.
In a critical test for the US financial markets, home finance giant Freddie Mac sold $5 billion of reference notes. Robust demand in the midst of crisis was a "very important sign that the markets are functioning at a significant level and we can continue to build from this," said Louise Herrle, vice president and Treasurer at Freddie Mac.
Gold jumped to $288.50 an ounce, from a low of $283, but later prices retraced and spot gold closed the day at $285.30/287.30.
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