Wall Street, world stocks battered again

October 28, 2008
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, NEW YORK, October 28 – Global markets endured more gut-wrenching turns with Wall Street falling hard in volatile trade and Europe wobbling after Asian markets took another drubbing on global recession fears.

In New York, the Dow Jones Industrial Average dropped 203.18 points (2.42 percent) to end at 8,175.77 in a choppy session that saw gains of as much as 200 points for the blue-chip index.

The Nasdaq composite slid 2.97 percent to 1,505.90 and the broad-market Standard & Poor\’s 500 index lost 3.18 percent to 848.92.

Wall Street action came after Tokyo shares plunged to a 26-year low, Hong Kong fell 12 percent and Europe faced volatile trade amid fears that emergency steps by world governments will be too late to prevent a worldwide recession.

"This is not your father\’s market and the weak will get trampled in a hurry," said Kevin Giddis, analyst at Morgan Keegan.

US stocks opened lower but took some comfort from a positive report on US home sales and upbeat earnings news, but the rally was short-lived before a heavy selloff.

News that the US Treasury was opening up its spigot of capital to help ailing banks also appeared to briefly help the sector and the overall market.

The market saw a modest uptick after data showed a surprising 2.7 percent month-on-month gain in new home sales in September, even though sales were more than 30 percent down from a year ago.

"While the gain was nothing to write home about, up is an awful lot better than down," said Joel Naroff of Naroff Economic Advisors.

The brief rally on Wall Street had a salutary effect in Europe.

The London FTSE index, which earlier in the day had plunged more than 5.0 percent, escaped with a loss of just 0.79 percent at 3,852.59 while in Paris the CAC 40 came back from a decline of more than 6.0 percent to close down 3.96 percent at 3,067.35.

In Frankfurt, the DAX gained 0.91 percent at 4,334.64, powered by a jump of more than 150 percent in VW shares that came after Porsche said it had increased its stake in the biggest European car maker.

The early falls in Europe trailed a day of panic on Asian markets, despite a fresh pledge from the Group of Seven nations to take steps to stabilize the world financial system.

Japan\’s Nikkei index plunged 6.36 percent, striking its lowest level since October 1982, on fears that emergency steps will be too late to prevent a worldwide recession.

Hong Kong lost 12.7 percent in the biggest single-day drop since 1991 as investors dumped stocks.

Sentiment in Europe was initially shaken by news that business confidence in Germany, the eurozone\’s largest economy, plunged to a five-year low in October.

The monthly business climate index calculated by Munich-based Ifo fell to 90.2 points from 92.9 points in September, its fifth straight drop and its lowest level since May 2003.

"Germany is heading for a serious recession," said Bank of America senior economist Holger Schmieding, adding that it "may not abate before mid-2009."

But investor spirits later got a lift when European Central Bank head Jean-Claude Trichet told an economic conference in Madrid that another cut in the ECB\’s main lending rate was possible when its board meets next week.

"I consider it possible" that the bank will lower its key rate at a meeting on November 6 because it seems that "inflation expectations have diminished," Trichet said.

Some observers felt a rate cut could come even sooner, maybe on Wednesday as part of another joint move with the US Federal Reserve.

"The ECB has opened the door to a rate cut and the Fed is moving in the same direction," commented one Paris trader.

"That has had a good effect on the markets. However, it\’s a necessary move but it\’s not sufficient."

Markets digested news that the US Treasury was preparing to inject this week some 125 billion dollars into nine major banks as part of a massive rescue plan, and the debut of the Federal Reserve\’s commercial paper program aimed at unfreezing short-term credit for corporate funding.

Still, confidence remained weak.

Toronto\’s main stock index plunged 8.14 percent and Brazil\’s Bovespa lost 6.5 percent.

"We have seen few signs that the worst of the credit crisis may be over, except for the important banking spreads that have been the target of government action," said Bob Doll, chief investment officer at BlackRock.

"There are additional steps that the authorities will take to unfreeze the markets and get banks trading with one another, but of course, the problem now is that debt deflation has halted economic activity in many places. The world relies on credit and trust, and neither is in long supply at the moment."

The losses came despite a statement from the Group of Seven nations — Britain, Canada, France, Germany, Italy, Japan and the United States — that sought to calm nerves by affirming their "shared interest in a strong and stable international financial system."

In other confidence building measures, Japanese Prime Minister Taro Aso announced steps to support the ailing stock market, including a bigger government fund to pump capital into banks if needed.

Meanwhile, Mexico\’s central bank on Monday announced a financial stability plan including an increase in its foreign debt of up to five billion dollars, as it aims to relieve liquidity problems.

Mexico "will increase the financing planned originally for 2008 and 2009 with international financial organisms like the Inter-American Development Bank and the World Bank up to a sum of five billion dollars," the statement said.

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