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US stocks followed markets around the world, diving today as investors worried that efforts to untangle credit markets would not prevent a recession.
Warning from the US Federal Reserve Chairman Ben Bernanke that the American economy faced a significant threat, also helped to drive the Dow Jones Industrial Index down by 733.08 points or 7.87 per cent at 8,577.91.
At a speech delivered to the Economic Club of New York, Mr Bernanke said: “Stabilisation of the financial markets is a critical first step, but even if they stabilise as we hope they will, broader economic recovery will not happen right away.”
The broad Standard & Poor’s 500 index dropped more than 6 per cent.
New US data initiated the fall this morning, revealing that retail sales fell by 1.2 per cent in September, compared to a 0.4 per cent fall in the month before. At the same time, prices paid to producers of goods declined, by 0.4 per cent, in September.
Car sales emerged as the worst hit, falling to an annual rate of 12.5 million in September - the lowest number since 1993. Furniture sales also declined, down 2.3 per cent.
Shares around the world took a battering today as focus shifted from the global banking bailout that has been consuming investors to the wider economy and fears that a recession will soon envelop leading industrialised nations.
The FTSE 100 Index’s two-day revival came to a shuddering halt, losing 313.86 points or 7.16 per cent to 4,080.35 on a surprise rise in the number of people out of work, by 164,000 to 1.79 million, marking the fastest increase in 17 years.
Germany’s DAX index fell 6.5 per cent, and France’s CAC 40 lost 6.8 per cent.
Tim Hughes, head of sales trading at IG Index, said: “Gains made on the back of the recent banking rescue plans from the US and European countries have been wiped out today as investors began to take the impact of slowing economic growth on board.
“It’s all or nothing at the moment, with yet another large one-day movement. The comedown after the euphoria of the multi-billion pound bailouts earlier this week seemed inevitable, although a sharp rise in the latest UK unemployment figures hasn’t helped matters.”
In Hong Kong, the Hang Seng index fell 5 per cent after losing 834.58 points to close the day at 15,998.30.
Japan's Nikkei index closed 1.1 per cent higher at 9,547.47. However, trading in Tokyo was in marked contrast to yesterday when the Nikkei recorded its largest-ever one day gain, rising by 14 per cent, in anticipation of America's bank deal.
However, the strained money markets showed tentative signs of recovery in the wake of the bailouts. Three-month sterling Libor, the rate at which banks lend to each other, dropped to 4.550 percent from 4.635.
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Winge whine winge whine. Lets make it an olympic sport, Britain will get Gold, Silver & Bronze every time!
We have had many years of good times, now we must adjust for a while. Its called the economic cycle - surely it doesn't come as a suprise?
Michael Sims, London, United Kingdom
On a positive note, I hear the waiting time to get a new Ferrari is plummeting! It used to be two years, but these days I hear it's down to six months! Who knows, in a few months time maybe they'll be discounting them.
Steven , Auckland, New Zealand
The last paragraph is really reassuring!!
Paul Farmer, LONDON, uk
Dave of Wokingham: You are right the UK will not have the money to pay Social Security, because he has wasted Tax payers money. This is Biblical Prophecy (Britain & America in Prophecy), it started with the war in Iraq, this is worse than people realise. America is a break away state of Britain.
Daphne kenward, Cambridge, UK
brown has saved the financial sector - things are on the up there and its good banks are part nationalised, it will be easier to keep an eye on them. Not to mention shares holders are equally responsible for putting pressure on CEO's for better returns and bigger dividends.
calum, glasgow, united kingdom
And all the time, the government were trying to tell us that the biggest threat to the country came from Al Qaida, that there would be fewer low-skilled jobs in the future, that the golden rule would not be broken and that immigration was good for us. Wrong. Wrong. Wrong. Wrong.
Mark, Leeds,
its all about deleverage and political instability. it will take at least 2 years for it to be worked out of the system. Bush and Brown are economic illiterates with discredited political reputations. Upcoming recession/slowdown is reversion to the mean. It is a good thing in the long run.
G davies, cardiff, wales
What a buffon Brown is. Recession is already here and will deepen. Unemployment will rise and house prices will continue to fall. The bailout money should have been kept back to help.
Instead all its done is keep failed businesses in business. So what if at the end of it all we only had 3 banks.
David, Wokingham, England
Financial meltdown is still a possibility in the US; their $250K pakage is totally insufficient to stabilize the US economy. The actions taken in the UK and Europe will be of little use if the US goes bust. The imminent Presidential election will only serve to exascerbate.
john, milton keynes,
Economies are still in trouble, depression is likely. If Brown had worded his recapitalisation deal correctly, investors like myself would be looking to buy RBS shares instead of walking away. The debt Brown is saddling the country with will leave you all paying long after he has gone! Thanks MR B!
rob, derby, UK
How can it be a surprise? It has long been known that the US consumers are absolutely pushed to the max with debt...
Ritchie, strasbourg, France
Well that is it, we have had another Brown Boom and now another Brown Bust.
Brian, oxford, United Kingdom
It took fifteen years to get the unemployment figures down and it has all been ruined by greedy city institutions who did not understand the assets they were investing in. It all makes the government and the City of London's high spending regime look increasingly foolish.
david pengilly, long ditton, surrey
In a world where share prices are propped up by government money does anything make sense any more. Perhaps Gordon can bail out the job markets next and tax us all even more to keep people in jobs that are not economically viable. It SEEMS to have worked for the stock markets so why not.
Chris, Chipping Norton,
Looks like our financial wizard and genius will have to service all the toxic debt he has bought with his own money ... !!!
Hugh E Torrance, London, England