Friday's gains were soon forgotten

Friday's announcement of dismal jobs data, showing a slump in payrolls just when economists were expecting a rise, had been beaten out by rumours of progress in the US's hunt for Osama bin Laden, sparking a rally.

But on Monday, with the UN Security Council split down the middle over a fresh resolution to authorise force against Iraq and the price of oil soaring, the gloom reasserted itself.

At the close, the Dow Jones industrial average was 2.2% or 171.85 points lower at 7,568.18. The broader S&P 500 index dropped 2.6% or 21.41 points to 807.48, while the technology-heavy Nasdaq Composite fell 2.1% or 26.92 points to 1,278.37.

The poor US showing followed a rough day for markets elsewhere in the world. London's FTSE 100 index finished at 3436 points, down 55.6 or 1.59% and the Dax in Frankfurt slumped more than 4% to close at 2329.04 points, down 102.62 or 4.22%, in both cases a fresh seven-year low.

Troubles

Traders laid much of the blame on the shadow of war in Iraq, as the US and UK intensified their lobbying for a fresh UN resolution against ever-sterner opposition from France and Russia, two of the other three wielders of a potential veto.

Against a background of depressing economic news and an even more delicate nuclear standoff in North Korea, few are now betting on seeing much benefit even if - as the optimists would have it - a quick rally follows a rapid war.

The poor economic picture was highlighted by William Poole, President of the Federal Reserve Bank of St Louis, warning about the scale of short-term liabilities at Fannie Mae and Freddie Mac, the US's two biggest home finance groups.

If either government-sponsored company found itself in difficulties, he cautioned, the trouble would rapidly to the rest of the economy - an alert which pushed shares in both down 6% or more.

Also ruining the day as far as corporate news was concerned was General Electric, whose pension fund, it was revealed, was $5bn in the red.