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Shares tumble on recession fears US shares drop on recession fears
(about 3 hours later)
Stock markets in Europe have slumped, as weak economic figures fuel worries of a recession. US share prices have plummeted on renewed worries of a global recession.
Investors fear that government action to strengthen the financial system will not prevent a protracted downturn.Investors fear that government action to strengthen the financial system will not prevent a protracted downturn.
The UK's FTSE 100 fell 7.16%, Germany's Dax shed 6.49% and France's Cac 40 lost 6.82%. In New York, the main Dow Jones index was down more than 4%. Ben Bernanke, the chairman of the Federal Reserve, warned the US economy now faced a "significant threat" from the credit crisis.
Earlier, Asian countries had joined the global rescue effort, agreeing to buy banks' bad debt and support banks. He pledged the central bank would continue to fight the crisis aggressively. However, his speech in New York failed to cheer investors.
The FTSE 100 index ended down 314.62 points at 4,079.59, the Dax down 337.56 points at 4,861.63 points and the Cac down 247.45 points at 3,381.07. 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.
"The inevitable reversal for equity markets does seem to be under way," said Matt Buckland, a dealer at CMC Markets Slowing economy
The rebound is over and the risk of recession as high as ever Patrick Shum, Karl Thomson Securities class="" href="/1/hi/business/7670800.stm">UK unemployment increases again class="" href="/1/hi/world/europe/7669710.stm">Bank crisis to dominate EU talks class="" href="/1/hi/business/7671111.stm">New York 'faces 165,000 job cuts' Mr Bernanke said the US had avoided making the mistakes that helped plunge the country into the 1930s Great Depression.
"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," he added. 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.
"The turmoil in financial markets and the funding pressures on financial firms pose a significant threat to economic growth," he said.
The 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.
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.
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'
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.
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."
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.
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.
"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.
"The impact of the collapse of the banking system will be extremely burdensome and the accompanying economic contraction very sharp," the board of governors said.
Japan bucks trend
Australia's main share index ended 0.8% lower and India's main index slid 6%, falling below 11,000 points.
In Hong Kong, the Hang Seng index closed down 834.58 points, or 5% at 15,998.
However, Japan's Nikkei 225 index ended the day up 1.1% at 9,547.47 points despite falling in earlier trade. On Tuesday, it recorded its biggest gain to date.
"The rebound is over and the risk of recession as high as ever," said Patrick Shum, strategist with Karl Thomson Securities in Hong Kong.
"Governments across the world are cutting welfare spending and issuing more debt to help the financial system. But these measures will create a bigger problem of an economic slowdown."
In New York on Tuesday, Wall Street ended slightly lower at the close of trading as investors took some profits after Monday's big rises in stocks.
Asian action
The move by Asian countries to set up a multi-billion dollar fund to support banks came after Europe and US had announced a series of steps to recapitalise banks and guarantee bank lending to get credit markets moving again.
FROM THE TODAY PROGRAMME More from Today programme
Governments worldwide have pledged around $3 trillion as part of efforts to stem the financial crisis.
Philippines President Gloria Macapagal Arroyo said the World Bank had committed to provide the Asian fund with $10bn
She said that the Asian Development Bank and the International Monetary Fund may also contribute to the fund as well as the 10-member Association of Southeast Asian Nations (ASEAN) and China, Japan and South Korea.
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.
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