European and US stocks down on recession fears
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Europe's main indexes closed down more than 6 percent with US markets posting losses of 8 percent amid lingering doubts over the health of the global economy.
Mounting fears that global financial turmoil will now spark a recession in Europe and the United States rattled investors and sent share prices plunging on Wednesday.
Market analysts said that while extraordinary efforts by governments to shore up shaky banks may have boosted confidence earlier this week, they are now seen as unlikely to head off a US and European recession.
Sentiment on Wednesday was shattered by an unusually bleak report on US retail sales, which represent the bulk of US economic activity, and a key manufacturing index.
Most analysts now say that a US recession appears virtually certain as a crippling credit crunch and housing meltdown drags down the rest of the economy despite the 700-billion-dollar rescue plan approved by Congress that will include 250 billion dollars offered to banks to help restore credit flows.
In Brussels, European Union leaders gathering for a summit warned that the financial crisis was far from over and the real cost to jobs and growth was only now becoming clear.
"We are facing a major threat," said Luxembourg's Prime Minister Jean-Claude Juncker, chairman of the Eurogroup of finance ministers, as he entered the talks. "We have to be careful in the coming weeks."
"We are living in unprecedented times and we need an unprecedented level of coordination," EU Commission president Jose Manuel Barroso told reporters before leaders from the 27 EU member states began a closed-door session.
On Wall Street, the Dow Jones Industrial Average was down 3.37 percent at 8,997.10 points in midday trade while the tech-heavy Nasdaq had fallen 3.23 percent to 1,721.55.
Fueling the fall was a Commerce Department report that US retail sales slumped 1.2 percent in September, the sharpest drop since August 2005 and weaker than market expectations.
"There can be no doubt now that the economy is in recession," said Ian Shepherdson of High Frequency Economics. "It will be there a while."
"People have dropped shopping. This happened even before the total meltdown in the stock markets. What is ominous is that the declines in spending were broad-based," said Joel Naroff at Naroff Economic Advisors.
Meanwhile the New York Fed's Empire state index of factory activity in the northeastern region crashed to minus 24.6, its weakest reading ever.
In line with Wall Street, leading European stock markets plunged 6.0-7.0 percent at the close of trade.
The London FTSE 100 index of leading shares shed 7.16 percent to 4,079.59 points while in Paris the CAC 40 fell 6.82 percent to 3,381.07 points. The Frankfurt DAX gave up 6.49 percent at 4,861.63 points.
There were declines of 5.93 percent in Brussels, 5.06 percent in Madrid, 5.58 percent on the Swiss Market Index, 5.33 percent in Milan and 7.56 percent in Amsterdam.
Russian stock markets shed around nine percent, with investors driven away by pessimism about sharply falling oil prices as well as the disappointing global economic outlook.
The benchmark index on the dollar-denominated RTS exchange slumped 9.26 percent to close at 788.98 points, while its counterpart on the ruble-based MICEX dropped 8.67 percent to 689.71 on a day interrupted by suspensions.
The trading day began with big losses in much of Asia
Hong Kong closed down 5.0 percent, Seoul slid 2.0 percent and Sydney ended 0.9 percent lower. But Tokyo added 1.06 percent, building on Tuesday's record 14 percent gains.
In fresh action to spur the flow of credit, which has all but dried up as debt-laden banks stopped lending to one another and to businesses, the European Central Bank unveiled new measures to make it easier for eurozone banks to borrow dollars and Swiss francs.
In the case of dollars, the bank said it was widening the kinds of collateral it would accept from banks and broaden the terms of longer-term loans to them.
A second ECB statement said the ECB and the Swiss National Bank had agreed to exchange their currencies in a deal that would also allow the ECB to loan Swiss francs to eurozone banks for one-week periods.
Recent initiatives by governments and central banks to support their financial sectors did appear to be easing tension on key interbank markets.
Two interbank lending rates, Libor and Euribor, continued to fall back after plans were announced by European authorities to commit 1.7 trillion euros to shore up struggling banks.
The lower rates were an indication that banks were becoming less reluctant to lend money among themselves. Their skittishness over the past few weeks, when they were weighed down by soured mortgage-related debt, contributed to an acute credit crisis that threatened the health of the global financial system.
The three-month London inter-bank offered rate (Libor) in dollars fell sharply to 4.5500 percent on Wednesday from 4.6350 percent on Tuesday.
The three-month Euribor rate, the benchmark in the eurozone, dropped to 5.168 percent from 5.235 percent.
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