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Shares fall despite US rate cut Shares fall despite US rate cut
(about 2 hours later)
US and Asian shares have fallen sharply, despite the interest rate cut from the US Federal Reserve. European stock markets have opened lower, following falls in the US and Asia which came despite Tuesday's US interest rate reduction.
The third cut in as many months took the rate from 4.5% to 4.25%, but that had been factored in by the markets and many had been hoping for a bigger cut. The Federal Reserve's cut from 4.5% to 4.25% had been expected by the markets. Many had hoped for a bigger reduction.
The Dow Jones fell 294.3 points or 2.1% to close at 13,432.8, while the Nikkei 225 in Tokyo closed down 112.5 points or 0.7% to 15,932.3. The Federal Reserve also warned about "the intensification of the housing correction and some softening in business and consumer spending".
European stock markets are now expected to open lower. The Dow Jones fell 2.1% and the Nikkei in Tokyo closed down 0.7%.
By the end of the morning session in Hong Kong, the benchmark Hang Seng index had fallen 2.3% to 28,550.3. The technology-heavy Nasdaq fell 2.5% or 66.6 points to close at 2,652.4.
In New York, the technology-heavy Nasdaq fell 2.5% or 66.6 points to close at 2,652.4. In London, the FTSE 100 closed down 1.2%, while the Dax in Frankfurt was down 0.8% and the Cac 40 in Paris fell 1.2%.
'Get over it'
"The action on Wall Street was very much knee-jerk on the disappointment of not getting a 50 basis point cut," said Craig James at Commonwealth Securities."The action on Wall Street was very much knee-jerk on the disappointment of not getting a 50 basis point cut," said Craig James at Commonwealth Securities.
"Investors will get over it, but for today at least it will be a case of following the negativity," he added."Investors will get over it, but for today at least it will be a case of following the negativity," he added.
The Federal Reserve's latest warnings differ markedly from those made by Fed Chairman Ben Bernanke after last month's interest rate cut, when he sounded a relatively upbeat note on the health of the US economy.
At that time, it was suggested that the greater risks came from inflationary pressures due to higher energy and food prices.
'Increased uncertainty'
But on this occasion, it warned that "recent developments, including the deterioration in financial market conditions, have increased the uncertainty surrounding the outlook for economic growth and inflation."
"They left open the possibility of additional rate reductions," said Carl Tannenbaum, chief economist at LaSalle Bank.
He expects the next cut could come as soon as January.
In addition to cutting its benchmark rate, the Federal Reserve also trimmed the rate at which it lends money to banks.
In an attempt to smooth out problems in the credit markets, it reduced its primary discount rate from 5% to 4.75%.
This is designed to boost the amount of money in the financial system, making it easier for banks to borrow from each other.