US Retail Fears and Weak Dollar Send Stock Markets Sliding

Stock markets on both sides of the Atlantic lurched downward yesterday as retail anxieties clouded the American economy and the US currency slipped closer to a rate of $2 against the pound.

In London, the FTSE 100 index dropped to its lowest close in seven weeks, losing 72 points to 6,050 in spite of upbeat UK housing data.

A more dramatic sell-off took place in America. The Dow Jones Industrial Average slumped 158 points to 12,121, its biggest fall for four months. The broader S&P 500 fell by 1.3% and the technology-dominated Nasdaq index lost 2.2%, hit by a sudden downturn in Google's shares.

Economists expressed renewed concern about American consumer spending after a dismal trading update from the world's biggest retailer, Wal-Mart.

Wal-Mart predicted that its November like-for-like sales would be down by 0.1% - its first monthly drop for 10 years - as it struggles to persuade shoppers to look beyond deeply discounted, one-off bargains on toys and electrical goods. Its update eclipsed better news from department stores and upmarket retailers which said shoppers had come in greater numbers over the Thanksgiving weekend.

During the day, the pound briefly hit $1.95 - its highest level since December 2004 - before settling back to $1.935, the level reached on Friday. Some foreign exchange analysts are predicting the pound will cross the $2 mark for the first time since the early 1990s, fuelled in part by a differential in interest rates between Britain and America.

Sterling shrugged off data from the British Bankers' Association which showed mortgage approvals jumped by 3.7% in October, suggesting that rising interest rates have yet to dampen demand in the housing market.

In America, the weekend marked the annual start of the Christmas shopping season, with Thanksgiving on Thursday closely followed by Black Friday - the day stores traditionally break into profit for the calendar year.

According to the National Retail Federation, 140 million people hit the high street over the weekend, spending an average of $360 (£185) each - an increase of 19% on last year. But experts said wily shoppers were picking out bargains such as plasma televisions, jewellery and toys, with the trend masking a weak underlying pattern.

Rising oil prices intensified the gloom - a barrel of crude crossed the $60 mark, rising by $1.08 to $60.32, on a suggestion from Saudi Arabia's oil minister that Opec may cut production.