Recession looms as ISEQ plummets in worst first-half in quarter of a century

The Iseq Overall Index lost 3.1pc over the course of the week to 5,295.66 points. The index has slumped 24.6pc so far this year -- heading for the worst first six months of the year since the Iseq was established in 1983.

The spate of downward revisions of forecasts for the Irish economy continued during the week. The Economic and Social Research Institute revealed it expects the country to enter recession this year, after mulling the impacts of declining consumption, slower exports, the building slump and credit crisis.

A fresh surge in oil prices to over $142 a barrel also weighed on sentiment, according to dealers.

Banks

Banking stocks were singled out, once again, for a particular beating as Belgian bank Fortis unveiled plans to raise €8bn to help it cope with the credit crunch. Pressure on the sector was compounded as the Bank of England governor Mervyn King said the housing market would be "extremely weak" and Goldman Sachs said there may be additional writedowns at Citigroup.

Bank of Ireland slid 8.2pc over the course of the week to €5,85, while Anglo Irish Bank plunged 5pc to €6.50. Irish Life & Permanent spiralled 16pc lower to €7.37. However, a 5.3pc surge by Allied Irish Bank yesterday reined in its losses for the week to less than 0.1pc.

CRH sank 5.3pc to €17.85 on the deteriorating outlook for the building materials group's markets and on news that it is losing the head of its US operations, Tom Hill. The executive's decision to resign comes after he was beaten by CRH's finance director Myles Lee to the upcoming vacancy in the chief executive's office.

Report

Housebuilder McInerney plunged 18.6pc to 57c as a report by the British Bankers' Association showed mortgage approvals slid to the lowest since at least 1997. UK-peer Barratt Developments dropped 27pc.

Greencore tumbled 28.8pc on news the group had sacked three managers after uncovering a €20m accounting fraud.

Elan was also in demand, rising 10.6pc as influential US broker Goldman Sachs added the stock to its "conviction buy list" on the strength of its potential Alzheimer's drug bapineuzumab, which it is co-developing with Wyeth.

The Irish drugmaker's stock had already soared 23.6pc the previous week after drug trials for the experimental treatment offered hope of a possible breakthrough.

Soaring oil prices knocked 11.2pc off the value of Ryanair over the past five days, while Aer Lingus dropped 9.8pc.

National benchmarks declined in all 18 western European markets. Germany's DAX 30 fell 2.4pc, and France's CAC 40 retreated 2.5pc. The UK's FTSE 100 decreased 1.6pc.

Wolfgang Matejka, chief investment officer at Vienna-based Meinl Bank, said: "High energy costs and oil prices are hampering economic growth."

The US Federal Reserve kept its benchmark rate at 2pc during the week and warned that faster inflation may accompany some strengthening of the economy.

Carmakers were in reverse as sector followers considered oil prices. Daimler dropped 10pc, BMW, the world's biggest luxury carmaker, declined 6.8pc and Fiat, Italy's largest manufacturer, fell 11pc.

Lehman Brothers lowered its 2008 earnings estimate for the European car industry by 6pc and cut its share-price estimates for automakers, citing "headwinds" from higher raw-material prices in a report.

Carmakers in the region face the risk of a 1970s-style oil-price shock, Credit Suisse said.

Carrefour slumped 17pc as the French retailer said operating profit would increase at about the same pace as sales this year, six weeks after saying earnings by that measure would exceed the pace of revenue growth.

Consumers

Arcandor, Germany's largest department-store company, fell 20pc on concern about the purpose of a bond sale to raise as much as €350m.

DSG International plunged 11pc as the UK consumer-electronics retailer reported an annual loss on a charge against the value of its money-losing Italian unit

Old Mutual led a retreat in insurance stocks, sliding 12pc. The UK insurer, which is seeking to grow outside its main market in South Africa, said first-half profit in the US would decline on "tougher" markets and higher costs. Operating profit would fall 25pc at its US life unit, and 10pc in US asset management, the company said.

Fortis fell 13pc as the financial-services company scrapped a €1.3bn cash dividend and said it would sell shares and assets as the earnings outlook deteriorated. Fortis said it would raise €8bn of new capital by selling stock and "non-core" assets such as real estate, and would not pay the interim dividend for the first time in four years. (Additional reporting, Bloomberg)