Bundesbank Batters Footsie

Daily Mail (London), October 10, 1997 | Go to article overview

Bundesbank Batters Footsie


Byline: GEOFF FOSTER

GERMANY'S decision to raise its key money market interest rate for the first time in five years gave bulls another nasty jolt yesterday.

Coming a day after Federal Reserve chairman Alan Greenspan's warning about inflation and 'unrealistic' share valuations, the rise in the Bundesbank's repo rate from 3pc to 3.3pc prompted a round of European rate rises and left bond and equity markets in the red again.

The Footsie plummeted 96 points before closing 44.3 points down at 5217.8, for a two-day decline of 87.8 points. Wall Street initially lost 91 points but rallied strongly to trade only three points down three hours later.

US treasury bonds were badly hit.

Down 1 1 / 2 points on Wednesday on fears that Greenspan's comments mean US interest rates will have to rise again soon, they lost a further point with the benchmark 30-year bond that much lower to yield 6.4pc.

Gilts fell [pounds sterling]1 in sympathy, while German bunds lost a point and the IBIS DAX index dropped 87.48 points to 4179.92. The French CAC-40 index lost 63 points to 2960.65 after the Bank of France raised its key intervention rate from 3.1pc to 3.3pc. Belgium and Denmark also raised rates.

A soft CBI distributive retail trades survey indicating High Street activity remains at a moderate level and confirmation that the Bank of England's Monetary Policy Committee had left UK interest rates unchanged at 7pc had given gilts an early lift before the Bundesbank's move.

The pound dropped more than 2 pfennigs against the mark before closing 1 1 / 3 pfennigs lower at Dm2.8316. It firmed 1 / 4 cent to $1.6245 against the dollar.

The greenback fell to a 3 1 / 2 month low against the mark of Dm1.733 but was little changed at 121 yen.

General Accident, which has 40pc of shareholders' funds in North American assets, lost 54p to 1066 1 / 2 p. GRE fell 10 1 / 2 p to 318p and Royal Sun Alliance 15p to 611p.

Perennial bid favourite Commercial Union added 10p to 797 1 / 2 p.

Barclays recovered from 50p down to finish 20p easier at 1627 1 / 2 p.

Com-merzbank said it is NOT interested in buying BZW but Paribas is having a closer look. Meanwhile, UBS analyst John Aitken reiterated his sell recommendation on Barclays.

He believes the cash raised from BZW could be small and the restructuring charge may be high. …

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