REBOUND ON WALL STREET : Foreign Trading : World Markets Gyrate in Response to Wall Street’s Chaos

The Tokyo stock market in morning trading today bounced back to wipe out nearly all of its decline the day before. In Europe, though, stock prices bounced around wildly Monday in their first day of trading following Friday’s Wall Street plunge.

By the time the Tokyo market broke for lunch, the 225-issue Nikkei average was up 618.69 points to 35,087.38. On Monday, the Nikkei average dropped by 647.33, its largest margin of the year, but actually a drop of only 1.8%.

Share prices rebounded sharply in reaction to the overnight surge on the New York market. In the first hour of trading, the Nikkei average rose 435.11 points as individuals and investment trust firms bought across the board. Other institutional investors, however, remained on the sidelines, waiting for the U.S. trade statistics for August due out later in the day, dealers said.

Volume was estimated at a relatively low level of 160 million shares. In a news conference, Finance Minister Ryutaro Hashimoto denied rumors that Japanese investors had led the surge on the New York Stock Market on Monday.

He said the New York stock market recovered because the response to the failure of the buyout offer for UAL, the parent of United Airlines, had been excessive and because of expectations that the Federal Reserve Board will ease credit in the United States.

Major stock indexes in Europe on Monday posted closing losses ranging from a surprisingly mild 3.2% in London to a “far worse than expected” 12.8% in Frankfurt, West Germany.

Trading was suspended or interrupted in at least some issues on exchanges in Frankfurt, Brussels, Milan and Paris due to an imbalance between buy and sell orders. In what traders called a highly unusual move in Amsterdam, the bourse management imposed a 15-minute “cooling-off period” in trading of any issue in which the share price fluctuated by more than three guilders, or $1.43.

Behavior ‘Extraordinary’

In London, where trading continued unrestricted all day, prices fell less than many had anticipated at the opening, then plunged more deeply than feared by mid-day before recovering after Wall Street’s morning rally to close more strongly than most had dared hope on unusually high volume.

Calling the markets’ behavior “extraordinary,” Roger Bootle, chief economist for Lloyds Merchant Bank, said there were two lessons in Monday’s performance: “One is how impossible these markets are to predict in the short term, and two is that all of us who comment on them ought to stop.”

Clearly concurring with Bootle’s advice, a leading analyst at a large London brokerage agreed to speak only on condition that neither he nor his firm be identified by name. “Frankly,” he explained, “we’re pretty confused about what’s going on.”

The situation may be clearer in a day or two, this analyst added, but as of Monday “basically what we’re doing in London is watching Wall Street.”

Adding to the European uncertainty was the fact that markets here closed Monday by noon New York time, when Wall Street still had several hours of trading ahead of it.

Dealers said trading on most European exchanges was less feverish than after the October, 1987, New York stock market crash. An exception was Frankfurt, where a broker described Monday’s selloff as “far worse than anyone expected. It was just the small investors, but it was still worse than two years ago,” the broker said.

Frankfurt’s 30-share DAX index finished the day down 203.56 points, or 12.8%, to 1,385.72.

Switzerland’s index of leading stocks also fell by more than 10%, but in Paris prices recovered from double-digit setbacks to finish down by about 7%. In Milan, the bourse’s official index fell nearly 8%, and shares in the youthful Madrid market dropped 6.5%.

Here in Europe’s largest and most important market, the experts were reluctant to make any predictions following Monday’s roller-coaster price ride.

Shares in London, as measured by the Financial Times Stock Exchange 100 shares index, opened down 157 points, or 7%, but quickly regained about 20 points of the fall. Many dealers had been predicting that the market would plummet 200 points immediately.

‘Feel Relieved’

After that initial recovery, prices started down again and reached their bottom around lunch, when the FTSE-100 was off by 204 points. When Wall Street opened with a small gain and then rallied from an early selloff, however, the London market turned sharply around. At the close, the FTSE-100 index was back up to 2,163.4, down a relatively modest 70.5 points, or 3.2% for the day.

“Having looked into the abyss and having drawn back, I think most investors are going to feel really very, very relieved after today’s performance here,” Philips & Drew chief market strategist, Ken Inglis, told British Broadcasting Corp.’s Radio 4.

London share prices had already tumbled by 8% in the past six weeks amid gloom about inflation, a punishing 15% basic lending rate and general concern about an economic recession next year. Monday’s closing FTSE-100 was 10.8% below the post-”Black Monday” high of 2,426 achieved on Sept. 5.

Financial analysts here were loath to make bold predictions about what may happen next.

“The test will be when (Wall Street) has regained about half those points” that it lost last Friday, said Peter Thompson, a well-known British stock forecaster and consultant to Barclay’s de Zoete Wedd Securities Ltd. The question then will be whether the partial recovery “brings in more sellers or whether it (goes on to) regain a large chunk of what it lost,” Thompson said in an interview.

Thompson added that he still expects bearish markets in both Britain and the United States, with the FTSE index bottoming out sometime next year at 1,800.

Patrick Foley, deputy chief economic adviser at Lloyds Bank, said he would not be surprised to see stock prices finish the week at about the same levels as Monday’s close. “I don’t think we’ll see a full recovery, but I also don’t think we’ll see any further substantial downward movement,” he said.

And that London broker who did not want to be quoted because he was so confused commented hopefully that if Wall Street stabilizes “this all might prove to be a bit of a storm in a teacup.”