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US shares plunge to five-year low US shares plunge to five-year low
(about 1 hour later)
Wall Street plunged more than 5% on Wednesday to its lowest level in over five years on rising economic worries.Wall Street plunged more than 5% on Wednesday to its lowest level in over five years on rising economic worries.
The Dow Jones average fell 427 points to close at 7,997.28, below the 8,000-level for the first time since 2003. October consumer prices fell 1% on the month before - the biggest such fall in 61 years, which has reinforced fears of rapid slowdown.
A record fall in October consumer prices and uncertainty over a possible rescue for US carmakers reinforced fears of slowdown. Adding to the gloom, the US Federal Reserve slashed its economic growth forecasts for 2009.
Adding to the gloom, the Federal Reserve slashed its economic growth forecasts for 2009. The Fed is expected to cut its key interest rate to 0.5% in December - it cut rates twice in October to 1%.
"It's certainly the Fed confirming what the market has realized - that the recession is here," said Bruce Zaro, of Delta Global Advisors in Boston. Economists say that this rapid fall in consumer prices has given the US central bank the room it needs to cut interest rates to battle the economic slump.
The reduction in consumer prices was the biggest monthly drop in 61 years and also reflected a significant decline in energy prices - fuel costs fell for a third month in a row. "It's certainly the Fed confirming what the market has realised - that the recession is here," said Bruce Zaro, of Delta Global Advisors in Boston.
At the close, the Dow Jones average was down 427 points to close at 7,997.28, below the 8,000-level for the first time since 2003.
The reduction in consumer prices also reflected a significant decline in energy prices - fuel costs fell for a third month in a row.
DOW JONES INDUSTRIAL AVERAGE: JAN-DEC 2008
There was also uncertainty about the fate of the "Big Three" US carmakers - GM, Ford and Chrysler.
Chief executives from the three firms have been on Capitol Hill this week asking for an urgent $25bn (£16.6bn) bail-out package as a "bridge" to help them survive.
The car firms say they need the aid quickly, otherwise they risk collapsing - with the loss of millions of jobs throughout America.
Republicans and the White House are opposed to aid for the car industry coming out of the $700bn bank bail-out. Politicians are now looking to find a compromise plan to aid the industry.
Carmakers were among the biggest fallers, with GM shares down 15% to a 66-year low, while rival Ford slumped to a 26-year low.Carmakers were among the biggest fallers, with GM shares down 15% to a 66-year low, while rival Ford slumped to a 26-year low.
Investors are worried about the possibility that there will be no quick proposal from Congress to resolve the problems hounding the industry before the current law-making session draws to a close.Investors are worried about the possibility that there will be no quick proposal from Congress to resolve the problems hounding the industry before the current law-making session draws to a close.
US car executives have spent two days this week on Capitol Hill pleading their case for a $25bn aid package to both Senate and House committees. US car executives have spent two days this week on Capitol Hill pleading their case for the $25bn aid package to both Senate and House committees.
Falling shares
Prospects for a bail-out have been uncertain but politicians have begun to talk about crafting some compromise deal.Prospects for a bail-out have been uncertain but politicians have begun to talk about crafting some compromise deal.
Investors are concerned about how a possible bankruptcy among US carmakers could further hurt an already fragile economy.Investors are concerned about how a possible bankruptcy among US carmakers could further hurt an already fragile economy.
Meanwhile financial shares were hit by persistent worries about the impact that the contracting economy will have on banks. Bank of America dropped 14.% and JP Morgan Chase was 11% lower. Meanwhile, financial shares were hit by persistent worries about the impact that the contracting economy will have on banks. Bank of America dropped 14% and JP Morgan Chase was 11% lower.
Meanwhile Citigroup shares tumbled 23% to a new 13-year low. This week the firm announced it was shedding 53,000 more jobs. Its shares have lost 53% of their value in November. Citigroup shares tumbled 23% to a new 13-year low. This week the firm announced it was shedding 53,000 more jobs. Its shares have lost 53% of their value in November.
William Larkin, of Cabot Money Management, Salem, Massachusetts, said of Citi: "People are looking at their business model and wondering how on earth they're going to be able to survive in this."William Larkin, of Cabot Money Management, Salem, Massachusetts, said of Citi: "People are looking at their business model and wondering how on earth they're going to be able to survive in this."
Earlier European markets closed with losses of more than 4%.Earlier European markets closed with losses of more than 4%.
DOW JONES INDUSTRIAL AVERAGE: JAN-DEC 2008