Big gains in Europe, but markets still nervous
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A day of highs and lows in Europe still left Paris, London and Frankfurt with significant gains of 3.0 and 5.0 per cent but a struggling Dow Jones failed to allay fears of imminent global recession.
Stock markets bounced from valley to peak Friday in choppy trade that saw big gains in Europe but a loss of momentum on Wall Street, with investors frazzled in the face of a looming global slowdown.
The Dow Jones Industrial Average fell hard in opening deals on more bad news from the US housing sector, later reversing course before sliding back into negative territory at mid-day.
Trading was erratic throughout the day in Europe, with prices rising and falling and rising again to close with gains of 3.0 and 5.0 percent in London, Paris and Frankfurt despite persistent fears for the health of the global economy.
"Equity markets remain in something of a quandary as we approach the weekend break," said CMC Markets dealer Matt Buckland, adding that investors were trying to determine whether markets had hit rock bottom or had further to fall.
"While this dilemma continues, it seems as if the volatility we've seen of late will struggle to fade and it's also going to be difficult to call an end to these choppy market conditions," said Buckland.
"Despite worldwide efforts to stabilise financial markets, fears the global economy is headed for recession continue to reverberate" around the world, noted NAB Capital economist David De Garis.
Hanging over Wall Street Friday was a report showing construction starts on new US homes plunged an additional 6.3 percent in September to the lowest level since the recession in 1991.
Analysts said the report was the latest in a series of recession-like indicators for the US economy.
The sharp downturn in the US housing sector over the past year has undermined the value of billions of dollars in mortgage-backed securities held by big banks around the world.
With their assets de-valued, banks had all but stopped lending money to each other and to businesses, depriving the global economy of critical credit and spurring governments to intervene with bank rescue packages and partial nationalisations.
In the aftermath of such interventions, said Fred Dickson at DA Davidson & Company, the stock market was continuing a "manic-depressive journey."
"Wall Street still hasn't calmed down following last week's massive Treasury initiatives that made the US government a partner with private owners of a broad array of major financial institutions, among other things." he said.
"The big question remains: 'When will the credit crisis begin to thaw?' Signs still point to a financial system locked in banking gridlock."
The Dow was down 0.38 percent at 8,945.01 at mid-day while the tech-heavy Nasdaq had lost 0.15 percent and was at 1,715.18.
In London the FTSE 100 index surged 5.22 percent to 4,063.01 while in Paris the CAC 40 added 4.68 percent to end the day at 3,329.92. The Frankfurt Dax finished 3.43 percent in positive territory at 4,781.33.
There were big gains elsewhere as well: 6.66 percent on the Swiss Market Index, 4.49 percent in Milan, 3.73 percent in Madrid and 1.7 percent in Amsterdam.
The German market advanced as a 480-billion-euro (650-billion-dollar) bank bailout flew through parliament in a historic fast-track vote to restore shattered confidence in the financial sector.
But at the same time, investors were increasingly worried about the risk of a severe global economic slowdown that could lead to rising unemployment, lower consumer spending and weaker corporate profits.
The Paris market's gains were clipped by news that French bank Caisse d'Epargne lost 600 million euros (800 million dollars) in a derivatives trading "incident" during last week's market turmoil.
The dramatic loss suffered by the mutual bank, one of France's biggest and generally regarded as a haven for cautious small savers, was the latest blow to confidence in a sector already ravaged by the credit crunch.
In Asian trade Friday, Tokyo clawed back some of the previous day's loss of more than 11 percent, which was the Japanese market's biggest drop in two decades, and closed with a gain of 2.78 percent.
Elsewhere, Sydney closed down 1.1 percent on Friday, Seoul lost 2.7 percent, while Shanghai rose 1.08.
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