Share trading cautious as City sums up tech losses

The City was in cautious mood today following the Dow Jones poor showing on Monday which particularly hit blue-chip shares.

On Tuesday morning the FTSE fell to 5036.3, before rallying to gain 50 points by mid-afternoon. There had been fears that the Dow Jones's disastrous trading day on Monday would have a severe knock-on effect as the Nasdaq dipped 3% - sinking to an eight-month low. The Dow Jones also saw 2.2% cut from its value, which represents the biggest loss in four months.

The market has been struggling of late as corporate America is racked by a series of mismanagement scandals and over-inflated profit predictions.

US blue-chip companies were hit by the announcement that Flextronics – the world's second-largest electronics provider – would revise its quarterly profits predictions. In the end, Flextronics revealed a profits decline of $2.32 billion to $10 billion, and Hewlett Packard added to the gloom when chief executive Carly Fiorina said that the company would reduce headcount by 15,000 over the next two years.

US stock has also been adversely affected as the credibility of executives was once again thrown into doubt by the resignation of tech giant Tyco's chief executive Dennis Kozlowski. Mr Kozlowski cited his imminent indictment in New York over tax evasion charges as the reason for his departure. Shares in the company fell 27% after the resignation and, elsewhere, shares in energy firm El Paso also suffered after news that a top executive committed suicide. The company had been the subject of allegations by federal investigators that it had abused its monopoly position, although there is no indication that the death is related. The release of Enron documents by the US administration to investigators deepened growing suspicious over the bona fides of executives.

"It makes it very difficult for people to invest in the market when they don't have a clue what a company's revenues and profits are," said Al Mirman, strategist at V Finance in Florida. "Companies are reporting profits that are not real. They are restating results. People just don't have confidence in companies."

In Europe, year-on-year growth in the eurozone only grew by 0.6% as a demoralised media and communications industry witnessed a number of huge corporations reporting massive write-downs and profits losses – most notably Vodafone, Granada, Carlton, and NTL.

The markets in general had been reacting to the worsening crisis in the Middle East as European nations prepare to evacuate their nationals from Pakistan and India.

The domino effect from a destabilised Middle East has produced a poor economic climate in Asia – further reducing a lucrative export market for US industry.

(GMcG)