The Greenspan bounce that had sent stocks jumping and bond prices tumbling on hopes of robust U.S. economic recovery proved short-lived on Thursday as markets did a sharp about-face on worries about tech company earnings. Shares in Europe and Japan followed Wall Street sharply lower. Bond yields fell as investors bought debt. The dollar, however, hung on to some of its recent strength. The losses wiped out stock gains across the world earlier this week after comments by Federal Reserve Chairman Alan Greenspan that the U.S. economy had entered a sustainable expansion that should weather a June slowdown. Motive for the stock sell-off was a wave of nerves, initially among U.S. investors, that technology earnings are set to slow. The tech-heavy Nasdaq <.IXIC> lost more than two percent and the mood spilled over, first into Japan and then Europe.
"Investors are getting wary of hard times ahead," said Susumu Abe, manager at the information and investment department at Mito Securities. Tokyo's Nikkei <.N225> closed 148.82 points, or 1.30 percent, lower at 11,285.04. The broader TOPIX index <.TOPX> slid 0.82 percent to 1,144.31. In Europe, the FTSE Eurotop 300 index <.FTEU3> of pan-European blue chips was 1.14 percent weaker while the narrower DJ Euro Stoxx 50 index <.STOXX50E> lost 1.45 percent. The DJ Stoxx technology index <.SX8P> slumped 2.5 percent. Greenspan also said that the U.S. economy was under no serious threat from inflation, allowing interest rates to rise at a measured pace.
DOLLAR, BONDS
Although the Greenspan effect dissipated on world bourses, it was still having some resilience on foreign exchange markets where the dollar was holding on to some of the gains it achieved on the bullish U.S. outlook. The dollar was around multi-week highs against the euro and yen. It was up a quarter of a percent at $1.2238 to the euro and up 0.15 percent on the yen at 109.90 yen. Analysts said they were not certain that gains would continue. "There is some concern that this has just been a position unwinding for the dollar rather than the start of a new trend higher," said Aziz McMahon, currency strategist at ABN AMRO in London. Euro zone government bond yields, however, reacted to the tech stock sell off. The two-year Schatz yield was down 1.6 basis points at 2.661 percent. On Wednesday, the yield hit a two-week high of around 2.71 percent. The 10-year Bund yield was down 1.5 basis points at 4.273 percent. On Wednesday, the yield marked an intraday high of 4.295 percent -- its highest level since July 2. A survey taken on Wednesday after Greenspan's two-day semi-annual testimony to Congress on monetary policy showed all 22 primary dealers polled expected a quarter point rise in the 1.25 percent Federal funds rate at the next policy meeting in August.///