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Uncertainty ahead of US rate move Uncertainty ahead of US rate move
(about 9 hours later)
Market turmoil after Lehman Brothers filed for bankruptcy has raised doubts over what the US central bank will do at its imminent rate-setting meeting.Market turmoil after Lehman Brothers filed for bankruptcy has raised doubts over what the US central bank will do at its imminent rate-setting meeting.
Economists said the Federal Reserve might lower interest rates, having earlier expected them to stay on hold.Economists said the Federal Reserve might lower interest rates, having earlier expected them to stay on hold.
Markets worldwide slumped on Monday with the Dow Jones Industrial Average closing down more than 500 points.Markets worldwide slumped on Monday with the Dow Jones Industrial Average closing down more than 500 points.
Faced with the twin threats of high inflation and a slowdown, the bank kept interest rates on hold at 2% in August.Faced with the twin threats of high inflation and a slowdown, the bank kept interest rates on hold at 2% in August.
Lehman Brothers - the fourth largest US investment firm - filed for bankruptcy after failing to find a buyer at the weekend.Lehman Brothers - the fourth largest US investment firm - filed for bankruptcy after failing to find a buyer at the weekend.
A main worry is that Lehman's bankruptcy will make it even harder to gain access to credit - hitting both other large lenders but also small firms and US homebuyers.A main worry is that Lehman's bankruptcy will make it even harder to gain access to credit - hitting both other large lenders but also small firms and US homebuyers.
"It puts a Fed rate cut back on the table" said Stuart Hoffman, lead economist at PNC Financial Services group."It puts a Fed rate cut back on the table" said Stuart Hoffman, lead economist at PNC Financial Services group.
A group of leading banks, including JP Morgan, Goldman Sachs and Citigroup, developed a $70bn (£38.9bn) pool that banks or brokerages can tap into to boost liquidity.A group of leading banks, including JP Morgan, Goldman Sachs and Citigroup, developed a $70bn (£38.9bn) pool that banks or brokerages can tap into to boost liquidity.
And the Federal Reserve took steps to improve access to emergency credit for struggling financial companies, by increasing the types of securities financial institutions could use to gain emergency funding.And the Federal Reserve took steps to improve access to emergency credit for struggling financial companies, by increasing the types of securities financial institutions could use to gain emergency funding.
Stocks fallsStocks falls
Lehman's demise was not the only news creating market jitters on Monday, before which analysts had expected interest rates to remain on hold.Lehman's demise was not the only news creating market jitters on Monday, before which analysts had expected interest rates to remain on hold.
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The future of insurance giant AIG remained unsure, after reports that it had sought $40bn in emergency funding over the weekend from the government to shore up its finances.The future of insurance giant AIG remained unsure, after reports that it had sought $40bn in emergency funding over the weekend from the government to shore up its finances.
Later on Monday the firm gained access to $20bn, thanks to New York State approval.Later on Monday the firm gained access to $20bn, thanks to New York State approval.
And Bank of America announced that it would buy Merrill Lynch in a $50bn deal.And Bank of America announced that it would buy Merrill Lynch in a $50bn deal.
Such uncertainty over the state of the markets and in particular key financial institutions prompted stocks worldwide to see sharp falls.Such uncertainty over the state of the markets and in particular key financial institutions prompted stocks worldwide to see sharp falls.
While the Dow Jones was down some 4% on Monday, the Standard & Poor's 500 index shed 4.69% and the Nasdaq composite index ended 3.60% lower.While the Dow Jones was down some 4% on Monday, the Standard & Poor's 500 index shed 4.69% and the Nasdaq composite index ended 3.60% lower.
Leading European indexes had ended lower, including the UK's FTSE 100 index which was 3.92% down.Leading European indexes had ended lower, including the UK's FTSE 100 index which was 3.92% down.