European terror threat gives stocks the jitters

WORLD stock markets were running scared as the growing possibility of Al-Qaeda's involvement in last week's bombings in Madrid raised fears that it was the start of a concerted terrorist campaign across mainland Europe.

Fund managers were forced to adopt a 'wait and see' attitude ahead of today's US Federal Open Market Committee meeting and tomorrow's UK Budget. The start of the Cheltenham Racing Festival today will provide a welcome distraction for many punters.

Wall Street's opening fall of 106 points certainly exacerbated London's dull trend. Down only 10 points at 3pm, the Footsie fell away sharply towards the close to finish 54.5 points down at the day's lowest of 4412.9.

The Fed could possibly put the brake on US selling by keeping interest rates on hold. Broker Bear Stearns believes the Fed will not raise rates until it sees a substantial improvement in employment conditions. 'With little prospect of radical employment turnaround promised in coming months, it could mean US rate hikes are delayed until next year,' says chief European economist David Brown.

Sterling edged up to $1.8005, while the euro held steady at 68p and $1.2252.

With British Airways leading the retreat at 269p, down 19 1/2p, travel stocks moved south on worries that Joe Public will stay at home in the coming months because of the perceived terrorist threat. Airport owner BAA nosedived 9p to 523 1/2p, while discount airline easyJet dipped 14p to 309p.

Hotel stocks were out of favour, with Hilton Group closing 6p cheaper at 214 1/2p and InterContinental, despite disposal news, 17 1/2p off at 512 1/2p.

Fading bid hopes left mmO2 6 1/2p lower at 100 1/2p. Die-hards still believe Li Ka Shing's Hutchison Whampoa is interested in the former Cellnet mobile phone group, and expects it to say as much at Thursday's results presentation.

With Royal & SunAlliance's (4 1/2p down at 88 3/4p) disappointing figures still fresh in the mind and the deteriorating market trend giving cause for concern, insurers were flat. Friends Provident shed 5 3/4p to 144 1/4p, Prudential 17 1/4p to 467 1/2p and Legal & General 3 1/2p to 95 1/2p.

Fashion retailer Burberry rose 6 1/2p to 342 1/2p amid whispers in the rag trade that something corporate is afoot. It was recently reported that Burberry boss Rose Marie Bravo was to lead the group to front an offer for troubled retail chain, Laura Ashley, 1/2p dearer at 14 3/4p.

Rumours of a gas distribution deal in Russia accompanied a 30p gain to 217 1/2p in Global Natural Energy. GNE's vice- chairman is Russian tycoon Alisher Usmanov, who owns 11% of Anglo-Dutch steel group Corus, 1 1/2p easier at 40 1/4p.

Aim-quoted ZI Medical gained 1p to 18p amid speculation it will soon sign up with a major pharmaceuticals company to distribute its portable medical device designed to administer a constant dose rate of intravenous fluid.

DCS jumped 3 1/4p to 16 3/4p on news Nasdaq-listed Auto Data Network has acquired a 33.3% stake in its DCS Automotive Holdings unit for £6m. ADN also has an option to buy the remaining 66.7% for a further £12m.

Yoomedia advanced 3 1/2p to 45p after signing an exclusive two-year contract with Turner Broadcasting System's Cartoon Network to provide the channel with interactive TV games on both UK digital cable platforms.

Barratts and PriceLess retail chain group Stylo edged up 1/2p to 43 1/2p after veteran property entrepreneur Jack Petchey bought a further 2.9 million shares to increase his shareholding to 12.6%.

Considered by some to be one of the market's cleanest 'shells', Aim-quoted ZyZygy improved 0.08p to 0.70p. Venture capitalist Billam bought 15.4 million shares from a former director and now holds 11.5%. Nervous selling ahead of next Wednesday's results left Vislink 4p down at 25 1/2p. Despite a strong return to profitability last year and trading above budget in the firstquarter of the current year, stockbroker WH Ireland cheapened 4 1/2p to 85p.