By Malcolm Davidson
LONDON, Aug 28 (Reuters) - The Russian bear trampled through
financial markets again on Friday with European stock markets
following Asia and Wall Street into a downward spiral.
German shares, which are heavily exposed to events in
Russia, tumbled five percent in early trade and that story was
taken up as each bourse opened in Europe.
Britain's blue chip FTSE 100 index opened down more than one
percent and quickly slid more than four percent. France's CAC-40
also lost over four percent.
"It's a cycle of one weak market triggering another weak
market triggering another weak market," said Michael Wilkins, a
dealer at Credit Lyonnais in Tokyo. "Where's the end?"
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MARKET PRICES AT 0838 GMT
MARK 1.7868/79 YEN 143.00/10 STERLING 1.6580/85
GOLD $272.25/273.00 -10.00 (pvs PM fix) BRENT $0.00 -0.00
FTSE 5157.5 -211.00 CAC 3,622.31 -123.33 X-DAX 4778.84
-233.89
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Wall Street started the latest phase of the rout, plunging
357 points, or 4.19 percent overnight. Tokyo traders responded
by pushing Japanese stocks to their lowest levels in 12 years,
the Nikkei 225 index sliding 3.46 percent.
The Madrid and Athens bourses fared particularly badly in
Western Europe, the Athens General Index plunging more than
seven percent and Madrid's IBEX index losing eight percent as
investors fled in the face of the international turmoil.
The state of share markets underlined a flight to quality
move into bonds, with German Bunds and British gilts pushing to
contract highs in the wake of gains by U.S. treasuries.
The stocks slump hit the dollar, which softened in Europe as
the foreign exchange market began to price in the possible
impact of the emerging markets crisis on the U.S. economy.
But the safe-haven Swiss franc continued to gain. The
dollar, which dropped to a 12-week low of 1.471 against the
Swiss franc in overnight trade, was quoted at 1.4748 at 0815
GMT.
Gold opened in Europe at a new 18-1/2 year low of $275.40 an
ounce as Australian gold producers continued to unload bullion
and the market was gripped by fears that Russia might be forced
to sell some of its gold reserves.
The latest round of stock market pummelling came as Russian
President Boris Yeltsin returned to the Kremlin for the first
time in several days and the central bank said it would issue
one billion roubles in discount bonds next week in an effort to
manage liquidity in the badly damaged banking system.
Although some analysts have started talking about the
trading opportunities that are opening following the plunging
asset values around the world, the short-term view on all
markets was grim.
"I think you will see major selling today," one German
trader said, pointing to Thursday's heavy trading on the New
York Stock Exchange, which posted its second-biggest volume day
ever. "That to me is a negative sign."
Dealers said the market continued to focus on events in
Russia, but there was also growing concern that Latin American
economies would be enveloped in the turmoil.
Car shares led decliners. Daimler <DAIG.F> lost nearly six
percent in early trade, VW <VOWG.F> fell 4.5 percent and BMW
<BMWG.F> dropped more than three percent.
Banks, which have been at the centre of the Russian storm
because of their exposure there, suffered further losses with
Vereinsbank <BVMG.F> plunging more than eight percent.
Deutsche Bank <DBKG.F> fell more than five percent and
Commerzbank <CBKG.F> and Dresdner were down more than three
percent.
French traders said as long as deep uncertainty lasted on
the Russian political and financial front, fund managers would
remain wary of exploiting the cheapness of stocks.
"No-one's interested in stock stories. There's a ghost around
every corner," an equity saleswoman at a big French brokerage
said. "We're in the absolute eye of the storm," she added.
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