City braced for new slide

The City staged a mild rally today but many analysts and fund managers were braced for further falls in share prices following last week's slide. In early trading the FT-SE 100 Index was up 36.8 points to 4667.6.

Six per cent was wiped off the value of Britain's leading shares last week, with the FT-SE hitting a low of 4,565 - only 120 points above its 21 September closing low of 4,433.7.

A crisis of confidence in American business, sparked by Enron and then fuelled by the downfall of auditors Andersen and the shaming of Wall Street analysts, lies behind the latest slide in the markets.

In London, the fall-out from Wall Street has been exacerbated by mounting worries about a possible housing market collapse and fears that the insurance industry is in trouble and having to sell off shares to meet solvency requirements.

At the weekend Andersen was found guilty by a US jury of deliberately shredding documents to cover up the mess at Enron.

American investors have pulled money out of company stocks as the country has been rocked by one corporate scandal after another. Two of New York's most high-profile businessmen have been indicted in the past fortnight - Dennis Kozlowski, former boss of Tyco and Sam Waskal, the former chief executive of Imclone.

Plunging share prices in the Far East also dented confidence in London today. In Japan, the Nikkei 225 slid two per cent to 10,703.03, its biggest fall since November last year, and Japan's Topix Index of technology and car related stocks suffered its biggest drop of the year.

In Hong Kong the stock market fell for a fifth consecutive day. The Hang Seng Index lost 66.33 points to 10,889.19 with companies exposed to the US economy suffering badly. The City is worried that any further bad news from the other side of the Atlantic could provoke panic selling in Britain. This would spell further misery for millions of people whose future pensions depend on rising share prices.

Many City economists are now heavily downgrading their forecasts for the year end level of the FT-SE 100 Index and one has warned that it could stay below 6000 for a decade. A pensions crisis has been exacerbated by the growing number of companies which are closing generous final income schemes to new workers.

Research published today by the Association of Consulting Actuaries (ACA) shows that some 60 per cent of final salary schemes are closed to incomers and half of those still open are considering closing them to new members. More companies are bringingin defined contributions schemes which depend mostly on money paid in by workers and the performance of the stocks that that money is invested in. ACA said companies are switching to defined contribution to cut costs.

Final salary schemes take an average contribution of 11 per cent from the employer compared with six per cent for defined plans.

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