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World stocks plunge on recession fears

Text by AFP

Latest update : 2008-11-06

Global stocks fell sharply after the election day rally amid fears of a deep-seated recession. The Bank of England slashed its interest rates by an unprecedented 1.5% to 3% while the ECB cut its own by half a percentage point to 3.25%.

 

Global stock markets were sharply lower Thursday as unprecedented British interest rate cut and a more modest eurozone reduction in borrowing costs failed to dispel deep-seated recession fears.
   
The Bank of England slashed its key lending rate by a record 1.5 percentage points to 3.0 percent while the European Central Bank cut its main lending rate by half a percentage point to 3.25 percent.
   
Both banks said they were reacting in the face of an increasingly grim economic climate, highlighted by the failure of stock markets to rally off the back of Barack Obama's US election win.
   
Dealers said the British rate cut in particular was taken as a sign that the economy was facing a deep and protracted recession, with investors drawing only limited comfort from the move as a result.
   
The ECB rate cut was as expected but coming after very weak German industrial orders and a series of negative IMF forecasts for next year -- with growth revised to recession -- that move too did little for sentiment.
   
The International Monetary Fund said the advanced economies were expected to contract 0.3 percent in 2009, the first such decline since World War II.
   
Citing the global financial crisis, the IMF slashed its global growth forecast to 2.2 percent. Less than a month ago the IMF forecast growth of 0.5 percent in the advanced economies and 3.0 percent worldwide.
   
"Prospects for global growth have deteriorated over the past month as financial sector deleveraging has continued and producer and consumer confidence have fallen," the IMF said.
   
On Wall Street, which plunged more than 5.0 percent on Wednesday, stocks opened with modest losses as investors tried to get to grips with the darkening economic outlook after the euphoria Tuesday sparked by Democrat Barack Obama's presidential election victory.
   
In the first 15 minutes, the Dow Jones Industrial Average lost 0.35 percent and then continued to slide as the session went on.
   
"The afterglow following the presidential election ... wasn't long at all," said Patrick O'Hare at Briefing.com.
   
"Wall Street wasted little time turning its attention back to a slumping economy and that's where its focus still lies."
   
In London, the FTSE 100 index of leading shares was down 2.63 percent, in Paris the CAC 40 shed 3.93 percent and the Frankfurt DAX lost 3.53 percent, having come of their lows but then made no further progress.
   
Earlier in the day Asian markets saw losses of around seven percent.
   
Tokyo closed down 6.53 percent, Hong Kong dived 7.1 percent and Sydney fell 4.3 percent.
   
"Now that the (US presidential election) event is over, investors are sobering up and looking at the economic gloom," said Mizuho Investors Securities broker Masatoshi Sato.
   
The reduction by the BoE was much larger than economists had forecast but the bank said the prevailing climate had necessitated such a move.
   
"The past two months have seen a substantial downward shift in the prospects for inflation in the United Kingdom," the BoE said in a statement.
   
"There has been a very marked deterioration in the outlook for economic activity at home and abroad. Moreover, commodity prices have fallen sharply."
   
Figures have shown that Britain is on the verge of recession while an official forecast by the European Commission earlier this week said the whole of the European Union was headed for recession later this year.

Date created : 2008-11-06

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