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Global markets continue to fall Volatility sweeps global markets
(about 2 hours later)
UK shares have fallen sharply in early Friday trading on the back of a sell-off in global stock markets. European shares made a volatile start to trade on Friday - rallying after early losses which were prompted by worries over interest rate levels.
The FTSE 100 lost 41 points, or 0.66%, in early trading on the back of Thursday's 3.2% slump - the biggest percentage loss in three years. In London, the FTSE 100 dropped 0.9% before rebounding into positive territory, easing fears that Thursday's share slump would be extended.
Concerns about the impact of higher global interest rates on company profits, takeovers and loan defaults have hit world markets. French and Germany's key share indexes also made up their early losses.
Asian shares ended more than 2% lower, after similar losses on Wall Street. World markets have been hit by concerns that higher interest rates will hit company profits and takeover deals.
Worrying conditionsWorrying conditions
The FTSE 100 was trading down 41.1 points, at 6,210.1 by 0820 BST. The FTSE 100 was trading up 47.7 points, 0.76% at 6,300 by 1010 BST - having lost 3.2% on Thursday - its biggest one-day percentage loss since 2002.
The stock market as a whole may be set for some dismal days Robert PestonBBC Business Editor Read Robert's blog
Analysts had predicted a further dip when UK trading resumed, but said that because most of the year's gains had been wiped out in one day, the market was now undervalued.Analysts had predicted a further dip when UK trading resumed, but said that because most of the year's gains had been wiped out in one day, the market was now undervalued.
The stock-market as a whole may be set for some dismal days Robert PestonBBC Business Editor class="" href="http://www.bbc.co.uk/blogs/thereporters/robertpeston/2007/07/the_l_word.html">Read Robert's blog Germany's Dax share index was up 0.2% while France's Cac-40 index was up 0.6%.
Germany's Dax index opened 1.6% lower while France's Cac-40 lost 0.54%. In Asia, the Wall Street slump on Thursday led to Japan's Nikkei average closing down 418.28 points, or 2.4%, at 17,283.81, while Hong Kong's index ended 2.7% lower.
Japan's Nikkei average closed 2.4% down, lost 418.28 points, or 2.4%, to end the week on 17,283.81. This followed New York's Dow Jones Industrial Average closing down 311.5 points, or 2.3%, at 13,473.57.
Hong Kong's index was trading 2% lower while Chinese shares were also in negative territory.
It followed New York's Dow Jones Industrial Average losing 311.5 points, or 2.3%, to 13,473.57, while the S&P 500 shed 2.3% to 1,482.66.
Asian investors had used Wall Street's decline as an excuse to lock in profits said Kitty Chan, director at Celestial Asia Securities.
Worries that have been out there for the past couple of years are coming to a head right now Edward YardeniPresident, Yardeni Research
"After all, markets worldwide have gained considerably in recent months," she said.
Analysts and investors have been warning that a number of factors are combining to create worrying conditions for equity and credit markets.Analysts and investors have been warning that a number of factors are combining to create worrying conditions for equity and credit markets.
"Worries that have been out there for the past couple of years are coming to a head right now," said Edward Yardeni, president of Yardeni Research.
Over the past few years there has been a boom in company profits, house prices and mergers and acquisitions.Over the past few years there has been a boom in company profits, house prices and mergers and acquisitions.
Driving this have been low interest rates that have made it cheap for companies and consumers to borrow cash and finance purchases.Driving this have been low interest rates that have made it cheap for companies and consumers to borrow cash and finance purchases.
That period of cheap cash now seems to been coming to an end with central banks worldwide, including the Bank of England, raising their rates to slow stubbornly high inflation. That period of cheap cash now seems to been coming to an end, with central banks worldwide, including the Bank of England, raising their rates to slow stubbornly high inflation.
At the same time, oil prices have climbed, raising fears that inflation could also pick up again because of higher energy costs.At the same time, oil prices have climbed, raising fears that inflation could also pick up again because of higher energy costs.
'Appreciating risk''Appreciating risk'
"Worries that have been out there for the past couple of years are coming to a head right now," said Edward Yardeni, president of Yardeni Research.
Markets are in "risk reduction mode", said Thomas di Galoma of Jefferies & Co.Markets are in "risk reduction mode", said Thomas di Galoma of Jefferies & Co.
As stock prices tumbled bonds rallied, with investors looking for assets that could guarantee them steady, and relatively safe returns.As stock prices tumbled bonds rallied, with investors looking for assets that could guarantee them steady, and relatively safe returns.
"You have a classic flight-to-quality rally," said Dean Junkans of Wells Fargo Private Bank, adding that markets outside of bonds were "finally appreciating risk"."You have a classic flight-to-quality rally," said Dean Junkans of Wells Fargo Private Bank, adding that markets outside of bonds were "finally appreciating risk".
Bill Schultz of McQueen, Ball & Associates said: "A lot of people are moving out of stocks, out of riskier fixed income into short-term Treasuries."
"If the stock market recovers, you will see the rally pull back."