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| Shares slump as rate fear returns | |
| (about 3 hours later) | |
| US and European stocks have fallen, with the UK's FTSE 100 index slumping 3%, on fears that central banks will not copy the US and cut interest rates. | |
| On Tuesday, the US Federal Reserve made its biggest rate cut for 25 years in an effort to avert a full-blown recession. | On Tuesday, the US Federal Reserve made its biggest rate cut for 25 years in an effort to avert a full-blown recession. |
| However, the European Central Bank hinted it would not follow suit, and the Bank of England was unlikely to accelerate rate cuts, analysts said. | However, the European Central Bank hinted it would not follow suit, and the Bank of England was unlikely to accelerate rate cuts, analysts said. |
| Stock indexes are set to be highly volatile in coming weeks, they warned. | Stock indexes are set to be highly volatile in coming weeks, they warned. |
| Speaking to the BBC, billionaire investor George Soros said it was going to be difficult for the UK and US to avoid a recession, even after the Fed cut its main interest rate to 3.5% from 4.25%. | Speaking to the BBC, billionaire investor George Soros said it was going to be difficult for the UK and US to avoid a recession, even after the Fed cut its main interest rate to 3.5% from 4.25%. |
| The markets are expecting a flood of profit warnings in the next few months Matthias Schellenberg,ING Investment Management. | |
| The worry is that slower economic growth will hurt corporate earnings, and stocks fell across all sectors on Wednesday. Banks, oil companies and technology firms were amongst the biggest decliners. | |
| "The uncertainty about corporate earnings growth in 2008 has risen, not only in the financial sector," said Matthias Schellenberg, managing director at ING Investment Management. | |
| "The markets are expecting a flood of profit warnings in the next few months." | |
| In New York, the main Dow Jones index dropped 1.1%, with the technology-dominated Nasdaq sliding 2%. | |
| The UK's FTSE 100 index was 215.78 points, or 4.5%, lower at 4,626.76, erasing earlier gains on Wednesday. Germany's Dax lost 5%, while France's Cac 40 fell 4.7%. | |
| So far this year, the FTSE 100 has lost almost 14% of its value, wiping £228bn off the total value of the companies listed on the index. | |
| Caution rules | Caution rules |
| Despite a late rally in stock prices on Tuesday and the positive session in Asia on Wednesday, investors were still being cautious. | Despite a late rally in stock prices on Tuesday and the positive session in Asia on Wednesday, investors were still being cautious. |
| Gains were also being limited by pre-market electronic trading in US shares, which indicated that stock indexes were set to fall when the New York Stock Exchange opens later. | Gains were also being limited by pre-market electronic trading in US shares, which indicated that stock indexes were set to fall when the New York Stock Exchange opens later. |
| "After digesting the news, markets have come to the conclusion that it will not resolve problems in the US economy," said Niels From of Dresdner Kleinwort. | |
| We consider the Fed's rate cut still insufficient for the global financial markets to completely recover and help the Japanese stocks to fully rebound Shinichi Ichikawa, Credit Suisse Bank boss warns of trialsSoros sees US recession | |
| "Caution still rules the long-term picture," said Markus Steinbeis of Pioneer Investments. | "Caution still rules the long-term picture," said Markus Steinbeis of Pioneer Investments. |
| Bank of England governor Mervyn King said that the UK faces its toughest economic challenges since 1997. | Bank of England governor Mervyn King said that the UK faces its toughest economic challenges since 1997. |
| Even so, with the Bank widely tipped to reduce rates to 5.25% from 5.5% next month, analysts are saying that more extensive cuts are unlikely. | Even so, with the Bank widely tipped to reduce rates to 5.25% from 5.5% next month, analysts are saying that more extensive cuts are unlikely. |
| This is because the Bank said the risk of inflation had "worsened markedly". | This is because the Bank said the risk of inflation had "worsened markedly". |
| European Central Bank (ECB) President Jean-Claude Trichet also highlighted the risk of inflation during a speech to the European Parliament on Wednesday. | European Central Bank (ECB) President Jean-Claude Trichet also highlighted the risk of inflation during a speech to the European Parliament on Wednesday. |
| Mr Trichet said that price growth was still the ECB's main concern, and this outweighed the risks of slowing economic growth. | Mr Trichet said that price growth was still the ECB's main concern, and this outweighed the risks of slowing economic growth. |
| "In all circumstances, but even more particularly in demanding times of significant market correction and turbulences, it is the responsibility of the central bank to solidly anchor inflation expectations to avoid additional volatility in already highly volatile markets," he explained. | "In all circumstances, but even more particularly in demanding times of significant market correction and turbulences, it is the responsibility of the central bank to solidly anchor inflation expectations to avoid additional volatility in already highly volatile markets," he explained. |
| Recession fears | Recession fears |
| Some investors cautioned that the Fed's sudden rate cut seemed like a panic decision. | Some investors cautioned that the Fed's sudden rate cut seemed like a panic decision. |
| They also questioned whether it would be enough to turn around a slump in the American housing market, signs of growing US unemployment and weakening consumer spending. | They also questioned whether it would be enough to turn around a slump in the American housing market, signs of growing US unemployment and weakening consumer spending. |
| "The Fed's action provided a very positive surprise," said Tsuyoshi Segawa, strategist at Shinko Securities in Tokyo. | "The Fed's action provided a very positive surprise," said Tsuyoshi Segawa, strategist at Shinko Securities in Tokyo. |
| "But people are also starting to think that things may be so bad they needed to act." | "But people are also starting to think that things may be so bad they needed to act." |
| Credit Suisse's chief strategist Shinichi Ichikawa added: "We consider the Fed's rate cut still insufficient for the global financial markets to completely recover and help the Japanese stocks to fully rebound." | Credit Suisse's chief strategist Shinichi Ichikawa added: "We consider the Fed's rate cut still insufficient for the global financial markets to completely recover and help the Japanese stocks to fully rebound." |
| Earlier on Wednesday, Japan's Nikkei 225 had closed up 2%, and Hong Kong's Hang Seng added 10.7%. | |
| In the US, the Dow Jones closed on Tuesday 1.1% lower. |