Markets in funk over war news

By JIM EAGLES and REUTERS

The realities of war have brought world markets crashing back to earth after their initial euphoria.

On Friday images of tanks and missiles pounding Iraq and rumours of Saddam Hussein's death sent share markets and the dollar soaring and oil prices plummeting.

But this week the television pictures of US and British casualties have sent prices in the opposite direction.

In New York the Dow Jones industrial average dropped 3.6 per cent, its biggest percentage loss in six months, a sharp contrast to last week's biggest rise in 20 years.

Traders who had been enthusiastic about the prospects of a speedy end to the war were suddenly more subdued.

"The market is pretty ugly," said Keith Keenan, vice-president of institutional trading at brokerage Wall Street Access. "The harsh military realities are starting to set in, and the market is discounting a longer military conflict."

Airline and hotel stocks were particularly hurt as travellers stuck close to home.

The picture was much the same in Europe. The FTSE Eurotop fell 4 per cent and Britain's FTSE 100 dropped 3 per cent, although both are still well above their March 12 lows.

Government bonds jumped and gold prices soared everywhere as investors dumped equities in favour of safe-haven investments.

World oil prices rebounded by almost US$2 a barrel from four-month lows as investors' hopes for a quick end to the war were dashed.

But in spite of the bounce, prices remained close to 20 per cent lower than a week earlier, largely because fears that Iraqi soldiers might repeat the sort of damage to oil wells seen in their retreat from Kuwait in 1991 have so far proved unfounded.

"There could still be some issues in the north or a counter-attack in the south," said Raad Alkadiri of PFC Energy in Washington, "but the worst-case scenarios, such as torching the oilfields, are not playing out."

The US dollar fell more than 1 per cent against the euro and the Swiss franc.

Herald Feature: Iraq