| Home | Politics | Human Rights | Water | Economy | Education | Sci & Tech | Culture | Sport |
22 January, 2008
NEW YORK (AFP) - The US central bank slashed interest rates by an unprecedented three quarters of a point Tuesday to try to prevent the US economy falling into recession but failed to stem global stock market turmoil.
Dealers said the Federal Reserve move was welcomed as a dramatic assertion the authorities would make the tough calls needed to keep the economy on track.
But the news whiplashed investors desperately trying to get a firm fix on the outlook.
In New York, US stocks plunged at the open in a near panic, with the Dow Jones Industrial Average tumbling below 12,000 points with a loss of 3.48 percent to 11,678.47 points.
Wall Street was closed Monday for a public holiday and so had avoided the global rout that saw some of the heaviest falls since the September 11, 2001 terror attacks as anxious investors sought to get their money out of stocks.
In Europe, dealers said investors hardly seemed to know which lead to follow as the markets turned this way and that through the day, posting heavy losses in early trade only to recover then fall short again.
Towards the close, the European markets were mostly firmer again, with London's FTSE 100 index up 2.42 percent, the Paris CAC 40 up 3.06 percent and Frankfurt's DAX up 0.62 percent.
Similarly, the Dow Jones came back steadily after its opening plunge, to show a loss of just 0.56 percent at 1615 GMT.
Dealers said that after slowly building tensions in the past few months, the floodgates gave way Monday amid worries that the US economy was moving into a recession that would hit the rest of the world.
Against that backdrop, the Fed rate cut was first welcomed as the way forward.
"This major move might seem like a panic response to the plunge in stock prices but it also makes sense," said Dick Green at Briefing.com.
"The markets are in a panic, and the Fed needed to respond in kind."
Markets had been disappointed by the economic stimulus plan proposed last week by US President George W. Bush and saw the action as confirmation that the world's biggest economy is headed for trouble.
"The notion that the rest of the world would be immune from a US slowdown was nonsense and the rest of the world woke up to the fact that the chance of recession is more than 50-50," said Nariman Behravesh, chief economist at Global Insight,
Behravesh said US and European markets "are not that overvalued but some of the emerging markets are, so I think it's not surprising that's where you see some of the biggest drops."
Dealers said that after further heavy losses on Asian bourses Tuesday, taking up from where they left off Monday, European investors sold off sharply in early trade, anticipating a bad day on Wall Street.
"In the end the Fed simply couldn't wait another week until it's next scheduled (rate) meeting," said Capital Economics analyst Paul Ashworth.
"It chose to act, cutting the fed funds rate by an almost unprecedented 75 basis points to 3.5 percent ... in an attempt to shore up confidence before US stock markets open."
The dollar dived immediately following the Fed's action, while oil and gold prices recovered slightly.
In the face of the continuing stock market turmoil, world leaders urged calm and dismissed fears of a recession.
"There is no reason to believe there will be a recession in Europe or in Germany," German Chancellor Angela Merkel told NDR-Info radio.
Asian equities slumped earlier, with Japanese stocks hitting a 28-month low and Hong Kong closing down almost nine percent.
Dealers said Bush's announcement last Friday of 140 billion dollars (97 billion euros) in temporary tax cuts and other measures to ward off a recession in the world's biggest economy was not good enough.