Attacks Send Global Markets Reeling on Fear of Lengthy Economic Fallout

Global financial markets were thrown into panic today in the wake of the terrorist attacks in New York and Washington. Oil and gold prices soared in Europe, while stock markets there and in Latin America plummeted.

In lower Manhattan, the home of major U.S. markets, commodity trading had just begun when the first plane crashed into the World Trade Center. Stock trading never opened.

Securities and Exchange Commission Chairman Harvey Pitt said trading in U.S. stock markets will resume only “as soon as it is practicable to do so.”

The Federal Reserve, chief regulator of the U.S. banking system, said it remains open and operating normally. The central bank said it will provide liquidity to the banking system and to financial markets as needed.

Fed officials said Chairman Alan Greenspan was out of the country attending a banking conference in Switzerland but was being kept apprised of developments.

In London, oil prices surged even though the secretary-general of the Organization of Petroleum Exporting Countries, Ali Rodriguez of Venezuela, said the cartel will ensure world oil supplies and price stability.

“OPEC member countries are committed to their promises to guarantee sufficient oil supplies,” Rodriguez told Reuters after the attacks. “None of these things change OPEC’s decision to guarantee the stability of the oil market.”

But the price of benchmark crude oil futures in London jumped to $31.05 a barrel, the highest level since December, before closing at $29, up $1.55 on the day.

Gold prices in London soared 6% to the highest level in 3 1/2 months as investors rushed to buy the metal, a classic “safe haven” in times of global panic. Gold surged $16 to about $290 an ounce.

European stock markets crumbled on news of the attacks, with the German market losing nearly 8% of its value. The British market fell 5% before closing early.

Insurance stocks were the hardest hit, traders said, as investors feared the financial fallout of the attacks.

In Latin America, stock exchanges suspended trading and currencies tumbled. Stock exchanges in Brazil, Mexico, Argentina, Venezuela and Chile suspended trading as shares plummeted after the morning attacks.

The Mexican market was off 5.6% before trading was suspended.

On Wall Street, experts worried about the short-term and long-term effects on financial markets.

“This could change the view of global investors about how safe it is to invest here,” said economist Mark Zandi of Economy.com, a consulting firm in West Chester, Pa. “We’ve been the beneficiary for years of a great deal of cheap capital from abroad.”

Economy Expected to Sour in 3rd Quarter

Economic growth, barely positive for the last two quarters, will almost certainly turn negative in the current quarter, Zandi said, citing the disruption in transportation, communications and financial systems, as well as the effect on consumers’ psyches.

The catastrophe and the uncertainty surrounding it will be a sharp blow to consumer confidence, which along with real estate has been one of the few solid props still supporting the U.S. economy, experts said.

“Who’s going to feel like going out and buying a car now?” asked David A. Levy of the Jerome S. Levy Economic Institute in Mount Kisco, N.Y.

The damage to the country’s financial infrastructure, centered in New York, could be monumental in terms of loss of human talent, analysts said.

It was unclear how financial record keeping and electronic transaction networks might be affected longer term.

But Swift, the global financial communications system used by commercial banks, brokerages and investment managers to make cross-border payments, said its operations were unaffected.

“Swift operations are currently unaffected by the situation. Swift will, however, remain in a heightened state of readiness,” Swift said on its Web site.

The average daily value of payment messages on Swift is estimated to be more than $5 trillion, the Web site said.

Trading Disruption Temporary, SEC Says

In Washington, SEC Chairman Pitt said that “as a safety precaution while the tragic events of today are sorted out, the securities markets have decided not to open for trading today.”

But he declared that the “disruption to normal trading patterns is a temporary phenomenon.”

News broadcasts from the New York Stock Exchange showed the trading floor apparently intact but empty. The exchange is not far from the World Trade Center.

The only trading in New York around midday was in the inter-bank foreign exchange market, where the dollar was down sharply in very thin conditions.

Treasury Secretary Paul H. O’Neill, who arrived in Tokyo late today Japan time, canceled his plan to hold two days of talks with Japanese officials.

O’Neill had been set to meet Finance Minister Masajuro Shiokawa to discuss issues such as the global economic slowdown, currency market moves, falling global stock prices and the slow pace of Japanese economic reforms.

But Japan said it had no plans to close the Tokyo Stock Exchange, which was scheduled to open for trading in late afternoon Los Angeles time.

“We need to watch developments from here, but at the moment we are not thinking about” closing, Chief Cabinet Secretary Yasuo Fukuda told a news conference.

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Reuters and Associated Press were used in compiling this report.

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This story was published this afternoon as part of a special 8-page extra edition wrap focusing on today’s tragic events. Entitled “Terrorism Hits the U.S.,” the wrap focused on the most important events of the day, the history of World Trade Center, terrorism and other safety concerns. It wrapped today’s second daily and was distributed to major single copy retailers and high traffic commuter areas by early afternoon.

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