World share prices fall as fears deepen

Press, 18 November 1981, Page 26

World share prices fall as fears deepen

PA New York Share prices in the United States, Canada, and Europe fell sharply yesterday amid fears by investors that the economic slide in the United States would be longer and steeper than expected, dealers said. . In New York the Dow Jones industrial average dropped 10.66 points to 845.22 by midday, and in London the Financial Times index lost 12.5 points to close at 506.7. The Toronto stock market fell 41.5 points to 1880.3, partly because of gloom over last week’s budget, calling for restraint in government spending. Share prices also fell in Paris, Frankfurt, Zurich, Milan, and Amsterdam but the declines were moderate.

The Wall Street decline came as the United States Government forecast a big rise in unemployment in the coming months from the current eight per cent and after Friday’s report of a 1.5 per cent drop in industrial production during October.

Dealers said investors’ fears about the U.S. economic downturn were contributing to the fall on European markets, though trading was generally light, unlike the heavy selling of stocks yesterday on Wall Street.

The Secretary of the Treasury (Mr Donald Regan) has forecast that the gross national product, the total value of goods and services, would fall by an annual rate of three to 3.5 per cent during the fourth quarter, but President Reagan has predicted, a recovery during the'first half of next year.

. A White House' economic adviser, Mr Murray Weidenbaum, said in a television interview yesterday that the United States unemployment rate would rise well above last month’s eight per cent because of the recession.

Wall Street pessimism appeared to be too strong for the market to receive its customary boost when interest rates fall. < ■ - ■

One bank, Crocker National, lowered its prime rate — the interest rate charged to its best customers — from 17 to 16 per cent yesterday, continuing the current downward trend which has seen the prime rate fall from 20.5 per cent since August. A number of leading banks have already lowered their prime rates to 16.5 per cent but Crocker is the first to go to 16. The country’s fifth biggest bank, Morgan Guaranty Trust, dropped its prime rate from 17 to 16.5 per cent yesterday.

Analysts say that rates are falling as the deepening recession dries up demand for credit.

High United. States interestrates have been criticised by the United. States’ economic partners for-'slowing recovery from the world recession.

The United States Secretary for Commerce (Mr Malcolm Baldridge) predicted yesterday that U.S. interest rates would decline another two percentage points and then rise again as the economy started to recover in late spring or early summer. Mr Baldridge told reporters that when rates started to go up again they were unlikely to return to the near-record levels experienced earlier this year. .

He said the economy would have a difficult final quarter of this year but he thought it should start to pick up around the middle of next year. He said that the recovery would be strong, largely because of tax cuts for individuals and businesses from next July. Mr Baldridge said he expected the light monetary policy of the Federal Reserve, the U.S. Central Bank, to lead to a continued improvement in inflation which would help to keep interest rates down.