MercoPress. South Atlantic News Agency

US inflation fears cause a markets' black Monday

World financial markets plummeted Monday following fears by investors that the United States Federal Reserve might raise interest rates at the end of the month which could cause slow economic growth combined with sustained inflation.

In Europe stock exchanges closed downwards during a whole day of cautious trading.

"Although we're optimistic with European shares prospects, we believe optimism on the economy and profits has reached a maximum", said Ian Scott from Lehman Brothers.

In Wall Street the Dow-Jones industrial index dropped 0.91% and Nasdaq, 2.05%.

Earlier in the day the US Treasury announced that the US federal budget deficit exceeded expectations in May reaching 42.8 billion US dollars compared with 35.4 billion a year ago and market estimates of 39 billion. In the first eight months of the budget year, the shortfall totalled 227 billion, compared to 272.3 billion for the same period last year.

Following on Wall Street's poor performance Latinamerican markets suffered a black day. Mexico experienced its greatest drop since 2002 and Colombia was forced to stop trading.

Latinamerican markets fear that higher US interest rates will have a negative consequence for emerging markets.

As an omen of today's budget figures, last Tuesday Federal Reserve members suggested that interest rates would increase again in the Open Market meeting at the end of June.

Sandra Pianalto from the Cleveland Federal Reserve said that the sustained increase in US consumer structural prices had exceeded a level considered "comfortable".

Federal Reserve chairman Ben Bernanke warned in March that a stubbornly high deficit posed a major threat to future living standards.

The US Congressional Budget Office has forecast an annual budget shortfall of about 300 billion US dollars compared to previous deficits of 413 billion in 2004 and 319 billion last year, which were among the highest in history in dollar terms.

Furthermore this week US inflation reports must be released, which injected even more caution to shares trading.

In Argentina the Merval index dropped 4.56% Monday accumulating its sixth day of losses wiping this year's earnings.

"It's evident that there are no buyers in the stock exchange and the few still present are waiting to see US inflation data before deciding", said Mariano Travelli, a Buenos Aires stock market dealer.

In Colombia all trading was suspended twelve minutes before closing time when the market collapsed past the 10% benchmark drop in one session.

"This is the first time the automatic trigger functions since it was first established in July 2001", said Marcos Rojas a Bogotá financial market agent.

In Mexico the leading stock exchange index fell 4.3%, the greatest drop since September 2002 accumulating a six days running set back.

"In Mexico there are growing fears among investors given last week's collapse. Many prefer to cut losses and get out, given inflationary prospects in the US", said Gerardo Copca from Monex Financial Group.

Black Monday follows last week's accumulated drop of 8.61%, Mexico's greatest since the July 17 to 21 week in 2000 with a 9.65% drop.