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US shares drop on recession fears Recession fears knock US shares
(about 1 hour later)
US share prices have plummeted on renewed worries of a global recession. US share prices have plummeted more than 7% on renewed global recession worries, despite government action to strengthen the financial system.
Investors fear that government action to strengthen the financial system will not prevent a protracted downturn. The Dow plunged 7.87% or 733 points, to close down at 8,577 points.
Ben Bernanke, the chairman of the Federal Reserve, warned the US economy now faced a "significant threat" from the credit crisis. Ben Bernanke, the chairman of the Federal Reserve, warned that the US economy now faced a "significant threat" from the credit crisis.
He pledged the central bank would continue to fight the crisis aggressively. However, his speech in New York failed to cheer investors. Many investors are now convinced that the US economy, if not already in a recession, is moving towards one.
In afternoon trading after the Federal Reserve chairman had finished speaking, the Dow Jones industrial average was down 5.8%, or 540 points, at 8,770 points.
Slowing economySlowing economy
Mr Bernanke said the US had avoided making the mistakes that helped plunge the country into the 1930s Great Depression. The economic impact of the credit crisis was highlighted in two reports published on Wednesday.
However, he warned that it would take time for the country's economic health to mend, even if badly needed a return of confidence in the US financial system and the stabilisation of financial markets. US retail sales fell sharply in September, the biggest monthly decline in more than three years.
And a report by the Federal Reserve Bank itself showed economic activity had weakened across the country.
In a speech in New York, Mr Bernanke said the US had avoided making the mistakes that helped plunge the country into the 1930s Great Depression.
He pledged that the Fed would continue to aggressively fight the credit crisis.
But he warned it would take time for the country's economic health to mend.
"The turmoil in financial markets and the funding pressures on financial firms pose a significant threat to economic growth," he said."The turmoil in financial markets and the funding pressures on financial firms pose a significant threat to economic growth," he said.
However, his speech in New York failed to cheer investors.
The economy remains fairly weak, the recovery isn't going to happen overnight Kim Rupert, Action EconomicsThe economy remains fairly weak, the recovery isn't going to happen overnight Kim Rupert, Action Economics
One issue policy makers are now debating is how to regulate markets to restrain price booms, such as in the housing market - because of the economic problems they cause when they collapse.One issue policy makers are now debating is how to regulate markets to restrain price booms, such as in the housing market - because of the economic problems they cause when they collapse.
Mr Bernanke said: "The last decade has shown that bursting bubbles can be an extraordinarily dangerous and costly phenomenon for the US economy.Mr Bernanke said: "The last decade has shown that bursting bubbles can be an extraordinarily dangerous and costly phenomenon for the US economy.
"We're all going to be looking very hard at that issue and what to do about it," he added."We're all going to be looking very hard at that issue and what to do about it," he added.
The economic impact of the credit crisis was highlighted in two reports published on Wednesday.
US retail sales fell sharply in September, the biggest monthly decline in more than three years, and then a report by the Federal Reserve Bank itself showed economic activity had weakened across the country.
'Elite audience''Elite audience'
Reaction to Mr Bernanke's speech was mixed.Reaction to Mr Bernanke's speech was mixed.
Kim Rupert, of Action Economics in San Francisco, said: "There was only a little bit of mention of the economy but it was all pretty much stuff that we already knew.Kim Rupert, of Action Economics in San Francisco, said: "There was only a little bit of mention of the economy but it was all pretty much stuff that we already knew.
The inevitable reversal for equity markets does seem to be under way Matt Buckland, CMC Markets UK unemployment increases againBank crisis to dominate EU talksNew York 'faces 165,000 job cuts'The inevitable reversal for equity markets does seem to be under way Matt Buckland, CMC Markets UK unemployment increases againBank crisis to dominate EU talksNew York 'faces 165,000 job cuts'
"The economy remains fairly weak, the recovery isn't going to happen overnight.""The economy remains fairly weak, the recovery isn't going to happen overnight."
Cary Leahey, of Decision Economics in New York, said: "He is basically doing a stand-and-be-counted speech to an elite audience in New York.Cary Leahey, of Decision Economics in New York, said: "He is basically doing a stand-and-be-counted speech to an elite audience in New York.
"He is saying 'we will not stand down until the system is repaired' and 'we will use every resource to ease the crisis'," he added."He is saying 'we will not stand down until the system is repaired' and 'we will use every resource to ease the crisis'," he added.
Earlier in Europe, markets were also badly hit by fears of recession - the UK's FTSE 100 fell 7.16%, Germany's Dax shed 6.49% and France's Cac 40 lost 6.82%.Earlier in Europe, markets were also badly hit by fears of recession - the UK's FTSE 100 fell 7.16%, Germany's Dax shed 6.49% and France's Cac 40 lost 6.82%.
"The inevitable reversal for equity markets does seem to be under way," said Matt Buckland, a dealer at CMC Markets."The inevitable reversal for equity markets does seem to be under way," said Matt Buckland, a dealer at CMC Markets.
"We're seeing some profit taking and a reassessment of positions after the upswing, although there is an element of concern as to the longer term economic outlook creeping in.""We're seeing some profit taking and a reassessment of positions after the upswing, although there is an element of concern as to the longer term economic outlook creeping in."
Borrowing costs fallBorrowing costs fall
However, there were signs that banks were becoming more willing to lend to each other.However, there were signs that banks were becoming more willing to lend to each other.
The cost of borrowing between banks, as measured by London interbank offered rates (Libor), fell slightly on Wednesday.The cost of borrowing between banks, as measured by London interbank offered rates (Libor), fell slightly on Wednesday.
It was the second consecutive session that Libor rates for euros, dollars and pounds had eased, and the cost of borrowing fell for all loan durations - from overnight to one year.It was the second consecutive session that Libor rates for euros, dollars and pounds had eased, and the cost of borrowing fell for all loan durations - from overnight to one year.
Meanwhile, Iceland is still reeling from the worst economic crisis in the island's history.Meanwhile, Iceland is still reeling from the worst economic crisis in the island's history.
Its central bank slashed its main interest rate to 12% from 15.5% on Wednesday, and the bank said that things could deteriorate further.Its central bank slashed its main interest rate to 12% from 15.5% on Wednesday, and the bank said that things could deteriorate further.
How worried are you about a recession? What financial questions would you like to put to the experts? Send us your queries using the form below.How worried are you about a recession? What financial questions would you like to put to the experts? Send us your queries using the form below.
In most cases a selection of your comments will be published, displaying your name and location unless you state otherwise in the box below.In most cases a selection of your comments will be published, displaying your name and location unless you state otherwise in the box below.
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