UK markets: Another grey day

UPDATE: Tech shares halt their decline for the day, helped by US markets in a buoyant mood - but investors don't show much enthusiasm

Updated Tue, 18 Apr 2000 1730 GMT

The UK markets continued to experience turmoil Tuesday, with an initial burst of investor enthusiasm turning out to have been more fragile than it had at first appeared. While the most important indices have halted in their slide, investors still haven't regained confidence -- and most observers feel that technology stocks are still generally overvalued.

A better-than-expected opening on Wall Street encouraged UK investors to dip a toe back into the market, boosting the FTSE 100 79 points above its opening price to close at 6,074. The techMARK 100, measuring "new-economy" stocks, closed with even greater gains, jumping 80.58 to close at 3,471.

In early trading the Dow was up about 124 and Nasdaq had surged by 164 points.

Worse-than-expected inflation data from the US kicked off a disastrous wave of selling on Friday, with the Dow and Nasdaq markets suffering their worst-ever one-day point declines. Many feared a Black Monday this week, but UK indices fared better than expected, and Monday's US markets surged ahead, led by high-tech shares.

But it's too early to say whether the slide is over, according to dealers. The high spirits and seemingly endless techno-optimism that drove the tech-heavy Nasdaq to such giddy heights in the late 90s appears to have abated or disappeared.

It's expected that investors will leave behind their mania for everything ending in ".com" and refocus on what traditionally makes a business successful -- things like revenues and a strong business model -- but the process will take some time.

It was seen to have begun Monday: When the US markets opened, investors picked up "quality" stocks -- traditional companies with strong revenues -- preferring to focus on the fundamental strength of the economy rather than on "new economy" fever.

But few feel the markets have bottomed out. The Dow Jones Industrial Average was expected to open as much as 100 points down and Nasdaq about the same.

"People were never going to chase this market up and then have it come back in their face," said the London head of sales at a leading European brokerage. "The broad market wasn't good enough in the States last night and we're just waiting for any drama to unfold on the Street today. Just a handful of issues were leading the market. For the moment it's just very quiet," he said.

Also coming into play is the upcoming four-day Easter weekend, which will leave London markets closed while trading continues in the US. "There's been a little bit of buying but nobody's chasing it hard. The Easter holiday is looming and people steer clear of markets which are going to be shut while others are open, particularly in this environment," said the head of sales trading at a leading brokerage.

UK inflation information released Tuesday morning failed to make a big impression on traders, analysts said, but Wednesday's UK labour market data will be more closely watched. A predicted 6.1 percent rise in average earnings was seen as a bigger challenge to the UK's inflation target, dealers and strategists said.

FTSE technology shares which took the worst pounding in Monday's rout were the sharpest gainers in early trading Tuesday, though most dropped into negative territory as the afternoon wore on and were only lifted by the US markets' buoyant mood.

ARM (quote: ARM) closed up 3.32 percent at 3,170p, while Kingston Communications was down just 1p at 715p and Baltimore sank 3.9 percent to 5,604p.

E-commerce companies saw little enthusiasm during the day, with QXL.com (quote: QXL) down 11 to 226p. But lastminute.com, the high-profile travel site, rose steadily through the morning to more than 166p, then settled to close at 160p, or 5.26 percent up, though still well below its high of 532.5p.

Vodafone AirTouch (quote: VOD) closed up 18.5 at 304.3p, off its high of 401.3p. Energis (quote: EGS) was up 128 to 2,629p and Colt Telecom (quote: CTM) was up 140 to 2,712p. Most telecoms shares, including Colt and Energis, spent time in the red during the day.

Reuters contributed to this report.

This is not the end of the stock market, but we do have a highly damaging new way of trading. Companies active in this atmosphere are being forced into decisions that favour share holder value but not real business objectives. Go with Tony Westbrook to AnchorDesk UK for the news comment.

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