Stocks Plunge Worldwide On Greenspan Comments
LONDON (AP) _ Stock markets fell worldwide today with Japan’s main market index posting its biggest drop of the year, after Federal Reserve Chairman Alan Greenspan spooked traders by suggesting that prices on Wall Street were too high.
Prices were down 3 percent or more at midday in London, Paris and Frankfurt, as well as on smaller European exchanges, after steep drops in Asia pushed European traders into a mode of panic-selling. Amsterdam share prices were down almost 6 percent.
European prices recovered after the U.S. government reported that unemployment had risen to a four-month high of 5.4 percent last month, with the economy creating fewer jobs than expected. Slower economic growth could make the prospect of higher interest rates less likely.
Markets were jolted in Asia after Greenspan hinted at ``irrational exuberance″ in the U.S. stock market. His comments came at a speech in Washington after the New York Stock Exchange closed Thursday, but the remarks set off a wave of selling as other world markets opened.
``How do we know when irrational exuberance has unduly escalated asset values?″ Greenspan said in a speech at the American Enterprise Institute.
It was unclear whether the drop was temporary or the beginning of a ``correction″ that many analysts have been talking about for some time as some markets hit record high after record high this year.
``What you’re seeing in London is fear more than anything else,″ said Richard Jeffrey, group chief economist at Charterhouse Tilney Securities.
``Although London has risen quite strongly this year, hitting 4,000, it has not risen as fast as Wall Street. It is fear of Wall Street that has undermined prices in London, but that can be powerful.″
Shortly after midday, plunging stock futures prices had dragged the key market indicator in London, the Financial Times-Stock Exchange 100-share index, down by 4.2 percent.
The index dove 167.0 points to 3,884.2 by midday with traders unsure when the free-fall could stop on Europe’s biggest stock market. By early afternoon it was off about 2.6 percent, down 104.3 points at 3,946.9.
U.S. shares being traded in London also were hit hard as investors waited for Wall Street to open, hoping it might somehow bring stability to the situation.
The reaction to Greenspan came hard and fast, with more selling following each apparent pause in Europe.
Earlier, the sell-off pushed Tokyo’s prices into their sharpest drop of the year, a 3.19 percent decline that left the Nikkei Stock Average at 20,276.70 points.
Hong Kong’s Hang Seng Index dropped 2.9 percent, to close at 13,102.73.
But Richard Verin, head of trading at CS First Boston (HK) Ltd., pointed out that the sell-off came after an extraordinary bull run.
``People have made 30-40 percent in the market,″ Verin said. ``They’re saying `I’ve made a bit of money’ and they’re selling.″