Fears over the US economy and Chinese share prices put world markets under pressure today.
US housing data revealing that the selling price of new homes had plunged by more than 11% in the last month prompted a slide in the Dow Jones Industrial Average, which had reached a record high in the previous session.
London’s FTSE 100 Index, which has also been trading at near-seven year highs in recent weeks, lost 51 points on the day – 0.8% – as the market tracked the negative sentiment on Wall Street.
The fresh falls came after markets had rallied from a poor start to trading following comments by former US Federal Reserve chairman Alan Greenspan over his fears of a sharp decline in Chinese share prices.
Mr Greenspan told a Madrid conference that recent rises in the Chinese CSI 300 Index of leading stocks in Shanghai and Shenzhen – which has surged by 90% this year – were “unsustainable”.
Richard Hunter, head of equities analysis at Hargreaves Lansdown, said: “The perception is that the US economy is in a difficult place at the moment with China making up for that, so any bad news over China is going to hit markets.”
Although the Chinese stock market is smaller than most major exchanges, increasing numbers of businesses around the world now operate in China, as the country fuels its rapid economic rise with skills and materials from overseas.
However, the country’s rapid growth has raised fears of a bubble developing that could burst in dramatic fashion.
The Chinese government has made moves to try to bring its economy under control by raising interest rates last week.
Fears over a Chinese stock collapse have already added to bouts of uncertainty in global markets this year.
The Footsie wobbled in February over fears that the Chinese government would try to cool economic growth by raising interest rates or reducing the money available for lending.
Mr Greenspan added to the market woes at the time by voicing predictions of a recession in the US – the world’s biggest economy – by the end of the year as he said the country’s budget deficit remained a major hurdle for economic growth.