Global stock trading remains volatile

Global markets have continued recent volatility, with sharp early falls in Asian and Europe followed by modest gains on Wall Street.

On Wall Street, the main Dow Jones index was up 0.6% in morning trading, lifted by a surprise rise in new home sales in September.

The advance eased losses on European indexes which had touched five-year lows earlier in the day.

Prior to that, Japan’s Nikkei index had ended at a 26-year low.

The Dow Jones was up 49 points to 8,428.

DOW JONES INDUSTRIAL AVERAGE: 27 October 2008

Its rise saw the UK’s FTSE 100 recover to rise 11 points or 0.3% in afternoon trading in London.

Earlier the FTSE had fallen 5.6% to 3,665 points – its lowest level since April 2003.

France’s Cac index was down 2%, while Germany’s Dax had shed 0.9%.

The pound also continued its recent falls, dropping against the dollar to $1.5341 in early trading before recovering slightly to $1.5435.

The euro was also lower, sliding to $1.2377, around levels last seen in April 2006, before coming back to $1.2454.

FTSE 100 INDEX: 27 October 2008

“There’s lots of volatility, not just in the equity market, but in the interest rate and currency markets too,” said Neil Parker, market strategist at Royal Bank of Scotland.

“We’re going to get further big swings as the markets watch for what the authorities are going to do.”

Asian impact

Japan’s Nikkei 225 index ended down 6.4% at its lowest level since 1982.

On the currency markets, Japan’s yen stayed near its 13-year high against the US dollar, despite threats of G7 intervention.

In other market news:

• Oil prices fell to 17-month lows. US light crude was down $1.77 at $62.38 a barrel. Brent was $1.75 lower at $60.30.
• India’s Sensex index dropped 6.1% to its lowest level since November 2005
• The Seoul market reversed early losses to close up 0.8% after South Korea’s central bank cut its key interest rate from 5% to 4.25% at a rare, unscheduled meeting
• In Hong Kong, the Hang Seng closed down 12.7% in its biggest single-day fall since 1991
• Chinese shares also fell, with the Shanghai Composite Index losing 6.3% to its lowest level since September 2006
• In the Philippines, the main index fell 12.3%, as the country’s second biggest bank Banco de Oro Unibank reported a loss of 1.3bn pesos ($26.8m; £16.8m) because of its exposure to the US investment bank Lehman Brothers
• European Central Bank President Jean-Claude Trichet says another cut in eurozone interest rates is “possible”. “There is more pain left. The global turmoil does not appear to be resolving soon,” said Atul Mehra at the brokerage J M Financial in Mumbai.

Yen warning

Earlier on Monday the Group of Seven (G7) industrialised nations issued a statement warning that the strength of the yen was a threat to economic stability, which was taken as a threat of co-ordinated action to reduce the value of the currency.

DOW JONES INDUSTRIAL AVERAGE: 27 October 2008

While the yen briefly weakened, it soon climbed back towards Friday’s 13-year high against the dollar.

The yen has been strengthening as a result of the end of the carry trade, in which traders borrowed the Japanese currency and used it to buy currencies with higher interest rates.

As the difference between Japanese rates and those elsewhere in the world has fallen, traders have been ending the carry trade, which means they have been using other currencies to buy yen, which has boosted the Japanese currency.

In other currency news, the Australian government intervened for a second time to support its currency, which was trading at a 5-year low against the US dollar. One US dollar was worth 0.6122 Australian dollars.

The Australian central bank last intervened more than a year ago and before that had not done so since 2001.