Black Monday looms for London after rout on Wall Street

David Smith and Garth Alexander

LONDON shares face a Black Monday tomorrow, after Friday's breakneck plunge on Wall Street. Analysts expect the FTSE 100, which fell 179 points to 6,178 on Friday, to open 150-200 points down.

The Dow Jones index recorded its largest ever points fall, plummeting 617 to 10,305.77, a drop of 5.6%, and its fourth biggest one-day percentage fall. This is still dwarfed, however, by October 19, 1987, when the market fell 22.6%. Friday's tumble was triggered by poor figures for American inflation, with core prices rising by 0.4% last month.

In homes across America this weekend stunned investors are trying to decide whether the worst is over or just beginning. While some analysts urge investors to get into the market and snap up "bargain" shares, others predict further falls. Al Goldman at AG Edwards said: "We could get a real bloodbath on Monday."

On Friday the Nasdaq fell 355.7 points to 3,321, a drop of 9.7% on the day and of 25% on the week - the worst week on record for the index.

Bill Gross, manager of the Pimco Total Return Fund, said: "This qualifies as a crash." But despite the brutal losses suffered by many speculative investors, the Nasdaq market is higher than it was in December.

Last week's declines were accelerated by a wave of margin calls that forced American investors who had bought stocks on credit to liquidate investments.

Although the Dow has given up most of its recent gains, its fall has been less spectacular than the Nasdaq's. It is still more than 50% higher than it was three years ago when Alan Greenspan, the Federal Reserve Board chairman, warned of "irrational exuberance".

The tone this week will be set by London and other European markets, which closed on Friday before the full extent of Wall Street's sell-off. "London is going to be very weak," said Justin Urquhart Stewart of Barclays Capital. "This has been building up and the worrying thing has been that there are no buyers. We are in for a few more weeks of this."

Robin Griffiths, a technical analyst with HSBC, said the Dow was now in a bear market but he was more optimistic about prospects for both the Nasdaq and the FTSE 100.

Tension will be heightened in London with the publication of figures on Wednesday set to show that average earnings are growing by more than 6% a year. One outcome of Wall Street's drop could be a fall in the dollar, which could pave the way for the pound to weaken against the euro. The Bank of England has made no secret of the fact it would prefer a lower pound and higher interest rates.

John Shepperd, a Dresdner Kleinwort Benson economist, said: "The risk of a dollar collapse is part of the scenario. Sterling is linked to the dollar and if the dollar falls we could see a big fall in sterling. Perversely, this could be the factor that gives us higher interest rates."

A survey of analysts by Ideaglobal.com, the financialresearch company, shows a 60% expectation of a rise in base rates when the Bank's monetary policy committee meets next month.

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-- Carl Jenkins (Somewherepress@aol.com), April 16, 2000