System crash stops London Stock Exchange in its tracks

Systems at the London Stock Exchange (LSE) suffered their worst failure in the organisation's history, bringing trading to a halt for most of the day.

The problems followed the installation of updated auction software, but traders weren't as disappointed as expected - many said the failure insulated UK high-tech stocks from the rollercoaster ride being experienced on Nasdaq.

A spokesman for the Exchange denied that software was to blame though, claiming instead there was a problem with the price feeder.

Shane Leonard, European Internet analyst at Credit Suisse, said: "All the traders are loving it, they're sitting around drinking coffee as stocks dropped around the world. Apparently they were testing new software after close of trade but it went wrong and now we're not trading."

The LSE re-opened at 3.45pm, making it the longest closure in its history. Trading hours were extended until 6.30pm, although a spokeswoman for the exchange admitted trading volumes would be far lower than a normal day.

The LSE refused to comment on what had caused the problems beyond blaming a "fault in the network that takes real-time price and other information from the central trading systems to our market users."

As London remained silent, trading continued on other exchanges though, and high-tech stocks continued to drop. Leonard said: "We are not yet at the bottom but we are somewhere close to it. There was an eight-fold increase in Internet stocks up until April last year, this was followed by a 50 per cent decrease between April and August.

"It was triggered by one or two company's missing predicted results, the collapse of [Charles] Schwab's share price and the negative publicity surrounding E-bay.

"Europe is now undergoing the same decline and it is indiscriminate. When the dust settles, I believe European investors will come back to the market but they will go for brand names with good services and a strong management," he added.

Justin Urquhart-Stuart, Barclays Stock Brokers, agreed, and claimed investors are being more discerning with their portfolios. "This is a good cold shower, investors are realising that many companies have been over-valued because the basic business proposition is over-hyped. You can identify the serious companies because the value is down but they are looking more solid and a more attractive offering in the long run," he said.

But in the short term, he claimed the share price drop will discourage investors from buying up high-tech stocks.

"I'm more interested in the collateral damage this is causing, because a lot of people will be 15 to 20 per cent poorer on paper and it will affect spending. Investors will be more cautious as a result and encourage the old syndrome of selling at the bottom price and buying at the top," he said.