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US concerns prompt market falls US concerns prompt market falls
(about 4 hours later)
Global shares have fallen sharply with London's FTSE 100 index losing about £32bn of its total value and closing at its lowest point since October 2005. Global shares have fallen sharply on fears over the state of the US economy, with the Dow Jones index closing at its lowest level in two years.
Stock markets also fell in the US, Asia and across mainland Europe. The Dow closed below 11,000 for the first time since July 2006 while London's FTSE 100 index closed at its lowest point since October 2005.
Analysts blamed mounting concerns about the health of US financial institutions and possible global fall-out. Stock markets also fell across mainland Europe and Asia.
Other negative factors included oil moving back close to $146 a barrel, and surging UK inflation, where consumer price growth hit an 11-year high. Sharp falls were also seen in the price of oil, which at one point fell $10 a barrel on expected lower crude demand.
In highly volatile trading, a barrel of US light crude fell below $136, having earlier risen above $146, and eventually settled down $6.44 at $138.74.
The Dow Jones index, meanwhile, closed down 92.65 points, or 0.8%, at 10,962,54.
Analysts blamed mounting concerns about the health of US financial institutions and the possible global fall-out for the market unrest.
'Sapping confidence''Sapping confidence'
The trigger for the latest slide in share prices was news that the US government had taken steps to protect mortgage firms Freddie Mac and Fannie Mae. The trigger for the latest slide in share prices was news that the US government had taken steps to protect mortgage firms Freddie Mac and Fannie Mae., which guarantee nearly half of all US mortgage debt.
Markets had initially steadied as traders absorbed the details of the US move, following the collapse of another lender, IndyMac.Markets had initially steadied as traders absorbed the details of the US move, following the collapse of another lender, IndyMac.
But while the plan was well received at first, analysts say optimism faded as investors focused on other, more negative issues. But while the plan was well received at first, analysts say optimism faded as investors focused on more negative issues and feared that shareholders of the two firms. could lose out should the government step in to buy more shares.
"The problems Fannie Mae and Freddie Mac face still highlight issues which are fundamental to the market," said Henk Potts, equity strategist at Barclays Stockbrokers. Oil seesawed in trading, reflecting worries about the US economy
"The problems Fannie Mae and Freddie Mac face still highlight issues which are fundamental to the market," said Henk Potts, from Barclays Stockbrokers.
"The reality is everyday investors are looking at runaway inflation, falling house prices, weak business and consumer confidence surveys that continue to sap away investors' confidence.""The reality is everyday investors are looking at runaway inflation, falling house prices, weak business and consumer confidence surveys that continue to sap away investors' confidence."
On Wall Street, the Dow Jones index had shed 56.83 points, 0.5%, to 10,998.36 points in afternoon trading, though the Nasdaq was up slightly, gaining 1.7 points, or 0.1%, to 2214.54 points. Shares in Fannie Mae and Freddie Mac both fell by more than 26% as US Treasury Secretary Henry Paulson said any government support for them would be done in a way that would "protect the US taxpayer".
Shares in Fannie Mae and Freddie Mac both fell by more than 17% as US Treasury Secretary Henry Paulson said there were no immediate plans for the government to buy any equity in the troubled mortgage firms.
Economic difficultiesEconomic difficulties
In testimony to the Senate Banking Committee, Federal Reserve chairman Ben Bernanke said the economy was being confronted by "numerous difficulties" including persistent strains in financial markets, rising joblessness and housing problems.In testimony to the Senate Banking Committee, Federal Reserve chairman Ben Bernanke said the economy was being confronted by "numerous difficulties" including persistent strains in financial markets, rising joblessness and housing problems.
Earlier, figures showed a sharp increase in wholesale inflation and weak retail sales.
In the UK, the FTSE 100 dropped 2.4% to its lowest close since October 2005 - with bank Royal Bank of Scotland and Carphone Warehouse among the biggest fallers.In the UK, the FTSE 100 dropped 2.4% to its lowest close since October 2005 - with bank Royal Bank of Scotland and Carphone Warehouse among the biggest fallers.
The financial sector in Germany was also hit where the Dax index lost 1.9% and hit its lowest point since October 2006.The financial sector in Germany was also hit where the Dax index lost 1.9% and hit its lowest point since October 2006.
Meanwhile France's Cac 40 index ended 1.9% on the day, its worst finish in more than three years.Meanwhile France's Cac 40 index ended 1.9% on the day, its worst finish in more than three years.
Eastern woesEastern woes
A sell-off in Asia hit Hong Kong's Hang Seng index, down 3.8%, while Japan's Nikkei 225 index slid 2% and Chinese shares fell 3%. Earlier, a sell-off in Asia hit Hong Kong's Hang Seng index, which fell 3.8%, while Japan's Nikkei 225 index slid 2% and Chinese shares fell 3%.
Of the Asian losses, banks were the hardest hit as investors worried that US financial market woes would spill over to Asia.Of the Asian losses, banks were the hardest hit as investors worried that US financial market woes would spill over to Asia.
In Japan, Mitsubishi UFJ Financial and Mizuho Financial Group both lost 5% over worries about their exposure to debt issued by Fannie Mae and Freddie Mac - who own or guarantee almost half of all US home loans. In Japan, Mitsubishi UFJ Financial and Mizuho Financial Group both lost 5% over worries about their exposure to debt issued by Fannie Mae and Freddie Mac.
These losses took Japan's Nikkei 225 - which has lost 11% of its value in the past month - to its first sub-13,000 points close since 15 April.These losses took Japan's Nikkei 225 - which has lost 11% of its value in the past month - to its first sub-13,000 points close since 15 April.
In Hong Kong, China's top lender ICBC fell 4.3% and China Construction Bank lost 4.5%.
India's main Sensex stock index lost 4.9% in Mumbai.India's main Sensex stock index lost 4.9% in Mumbai.