Sour Mood Descends on Wall Street

Downbeat data from the US economy underlined doubts about the strength of economic recovery yesterday, prompting a sell-off in equity markets on both sides of the Atlantic.

After the closely watched Conference Board index of consumer confidence slid from 81.7 in August to 76.8 in September, its lowest level since the war in Iraq ended, the Dow Jones fell 113 points by mid-afternoon, to 9,267.

Researchers at the Conference Board blamed the failure of the economic recovery to generate jobs for the slide in consumer confidence. "The lack of improvement in labour market conditions continues to dampen consumers' spirits," said Lynn Franco, director of its consumer research center.

A separate survey yesterday showed that manufacturing activity in the significant midwest region dropped in September, underlining fears that industry is still suffering despite the upturn in economic growth. The Chicago purchasing managers' index fell to 51.2 in September, from 58.9 in August.

"Taken together, the declines in confidence and business activity suggest that the US economy may find it hard to maintain the current rapid pace of growth beyond the current quarter," said Paul Ashworth, international economist at Capital Economics.

The sour mood on Wall Street was exacerbated by a warning from computer maker Sun Microsystems that it is likely to turn a larger than expected loss in the first quarter of the fiscal year. Its shares were off $0.56 at $3.30 by mid-afternoon.

In London, the pessimistic data from the US outweighed upward revisions to estimates of domestic GDP growth to send the FTSE 100 index of leading shares down 51.4 points, to close at a seven-week closing low of 4091.3. European policymakers are pinning their hopes on a strong recovery in the US economy, but the recent decline in the dollar has raised fears for the health of the US corporate sector.

"The data did spook people," said Henry Herrmann, chief investment officer at US investment firm Waddell & Reed. "Most of the things I see anecdotally are supportive of the idea that the economy is pretty strong ... however, we still have this issue of sustainability."