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Old 08-10-2007, 08:06 PM
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Default FTSE plunge wipes out year's gains

FTSE plunge wipes out year's gains

Nick Goodway, Evening Standard
10 August 2007. Updated 5:00pm

Central banks moved to bolster financial markets again today but failed to stop another wave of selling around the world.

Billions more were wiped off the value of Britain's top companies after the FTSE 100 index plunged 232.9 points or 3.71% to close at a low of 6,038.3, while the FTSE 250 was 303.6 points lower at 10,908.5. Both indices are now below their levels at the beginning of 2007.

For a time this afternoon it appeared that nerves were calming and their were signs of a slight recovery, but Wall Street triggered the panic again when it fell more than 200 points in early trading. On Thursday, the FTSE 100 index closed down 122.7 points.

As the shock of the US subprime mortgage lending crisis swept the world, European and Asian markets followed the near-3% slide on Wall Street overnight with large declines.

The European Central Bank pumped 61bn (41bn) into the money market on top of the 5bn it provided yesterday. Overnight the US Federal Reserve added $24bn (12bn) of liquidity, with the Bank of Japan spending $8.5bn and Australia's central bank A$5bn (2.1bn). So far, the Bank of England has not followed suit.

The unprecedented intervention, which has seen the ECB spend as much in the past two days as it did in the days after the 9/11 terror attacks, followed the suspension of a number of asset-backed funds across the Continent. Most notable was France's largest bank, BNP Paribas, halting withdrawals on three funds which had dropped in value from more than $2bn to $1.59bn in the past fortnight.

Today's slide in the FTSE 100 left it below the level at which it started the year. The index ended 2006 on 6220.8 and analysts were warning it could now drop back through 6000 for the first time in nine months. In Asia, shares continued the rout with the Nikkei 225 index in Tokyo losing more than 400 points, or 2.3% of its value, and in Hong Kong the Hang Seng index fell by 2.8%, or 640 points, before the markets were closed due to a typhoon warning.

Until recently, equity markets had enjoyed a strong rally. The FTSE 100 peaked at 6732.4 on 15 June, which meant it had gained 9.5% in the first half. The crisis was prompted by the meltdown in the US subprime mortgage market, where banks face huge defaults from bad-risk borrowers.

Richard Hunter, of Hargreaves Lansdown, said: 'The only difference between now and when we had the volatility a couple of weeks ago is the involvement of the central banks yesterday. By injecting liquidity they have also, unfortunately, injected uncertainty.'

Mike Lenhoff, of City stockbroker Brewin Dolphin, said: 'I feel that what we are seeing is the final stage of a correction. This is the climax stage of a sell-off. I still don't feel this is the start of a bear market of major proportions. The outlook for the economy is fundamentally still okay.'


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