World Markets Reel in Aftermath ; Asian Markets Slide, but Europe Stablizes. Investors Are Concerned the Attack May Tip US into a Recession

Article excerpt

If Sept. 11th 2001 is a day that will live in infamy, September 12th is one that writhes with uncertainty. Investors and business executives are trying to grasp how profound the impact of the destruction of the World Trade Center in New York City will have on global economic health.

Not since World War II has the New York Stock Exchange been closed for this long. Banks and other companies across the globe with offices in the Twin Towers and the World Financial Center struggled to take account of the massive loss of life and property. Many major firms in Tokyo could not, or would not, comment on how the disaster would affect markets worldwide.

But the markets themselves spoke. The Nikkei stock index here careened below 10,000 yen for the first time in 17 years. European stocks markets also went into a sales panic. Japanese banks - 36 of which had major offices in the World Trade Center - plunged 6 percent, while investors went into a selling frenzy and sought the relative safety of cash, gold, and government bonds.

"Technically, it's a minor crash," Brandon Ginsberg, the managing director of Nikko Solomon Smith Barney in Tokyo, says of the yesterday's near freefall in stocks. "Everything has been sold off like crazy."

Whether the plunge in the stock prices - and the concurrent jump in the price of oil and gold - signals the start of a global recession is a forecast few experts are keen to make. But the consensus that does emerge is the following: History holds no equivalent precedent to use as a guide by which to judge whether this attack has set in motion a global financial collapse, nor whether one could be halted in its tracks. Analysts are concerned that US consumer confidence - a key factor now underpinning the US economy - may not recover soon, dashing hopes around Asia and Europe that American purchasing power would rescue world markets from their doldrums.

An analyst at the brokerage Exane, Emmanuel Ferry, told Agence France Press that US consumer spending represents 15 percent of world GDP, and has been driving international trade for five years. Other analysts say that Tuesday's attack, in all its horror in human terms, could not have come at a worse moment economically.

"We were already extremely oversold before today," says Mr. Ginsburg, looking at the year's skid in share prices. "It's tough to grasp, because there just aren't any similar situations. Perhaps it's almost better that they keep the markets closed for a week, but then it's hard for the economy to function at all."

Fearful of statements that might exacerbate the market shock, many observers chose to say nothing at all.

"One of the problems all of us are having is to try to keep a sense of perspective and not overreact," says Bruce Gale, the Singapore director of Control Risk Group, whose headquarters is in London.

In one respect, the 1929 stock market crash that triggered the Great Depression - much less the more recent crash of 1987 -can't be compared to the damage caused by Tuesday's attack.

"From a historical perspective, Black Monday was just a balance- sheet issue, but this is a collapse at the heart and core of international transactions," says Tokyo University economics professor Toru Nakakita, a former Japanese Ministry of Finance official. Since all international trades and currency exchanges need to be cleared in New York, he says, the world's markets cannot function for long without their most important link.

"Almost all the countries in the world depend on the dollar. All the transactions of stock all over the world are settled in New York, and this function cannot work without New York," he adds. Some banks were able to resume clearing services, he says, but the volume was extremely tiny and dangerous currency fluctuations are feared. …