Big drop still baffles US bourses

Exchange operators and regulators study Thursday's tumble

Three days after a major US stock index took a curiously large plunge in a matter of minutes, it is still unclear whether the culprit was an erroneous trade, a barrage of automated stock sales or something different. US regulators are investigating a drop of 587 points, or 5.6 per cent, in the Dow Jones Industrial Average between 2.40pm and 2.46pm in New York on Thursday. The index, a widely watched measure of the performance of large-company stock, recovered somewhat after the fall, ending the day 348 points lower at 10,520. But the drop pushed the Dow, which was already about 400 points down on Thursday afternoon, to one of its biggest intra-day losses since the Black Monday crash of October 1987.

"Remember that all this is coming in the context of already an erosion in trust among the public in financial markets, and lots of regulatory fluidity," Mohammed el Erian, the chief executive of Pimco, a major US asset management firm, told a Reuters television programme. "So this will add to both the mistrust in the street and to the desire to make sure that regulation is keeping up with the realities in the stock market."

All Gulf markets aside from Saudi Arabia's were closed for the weekend and will today have their first chance to react to the volatility in US markets. The Saudi Tadawul All Share Index fell by 4.4 per cent yesterday, weighed down by sagging global markets. Crude prices fell by $11.08 last week to about $75 a barrel. The US Securities and Exchange Commission and the Commodities Futures Trading Commission said on Friday that they were "continuing to review the unusual trading activity that took place briefly yesterday afternoon to pinpoint its cause and contributing factors".

One theory had it that a trader at Citigroup made a so-called "fat-fingered" trade, accidentally ordering a sale of billions of dollars worth of Procter & Gamble shares when he meant to sell millions worth. Citigroup denied the suggestion, saying "… based on our review, rumours about a trading error by Citi are unfounded". The US stock exchanges, for their part, said their trading systems were working properly, and there was no evidence that a technological problem led to the sell-off.