World Stock Markets Drop After 2-Day High

October 15, 2008 at 2:23 am Leave a comment

tokyo-pedestrians-world-markets.jpgEuropean and Asian stock markets mostly fell back Tuesday after a
two-day rally amid profit-taking and concerns that the global efforts
to restore confidence in the battered financial system will not be
enough to stave off a deep recession.

The FTSE 100 index of leading British shares was down 130.91 points,
or 3.0 percent, at 4,263.30. Germany’s DAX was 127.03 points, or 2.4
percent, lower at 5,072.16, while France’s CAC-40 was 85.29 points, or
2.4 percent, down at 3,543.23.

The losses in Europe’s follow similar declines in the U.S. and most Asian markets, except Japan.

“After
a bumper start to the week, the inevitable reversal for equity markets
does seem to be underway but there’s certainly no real belief so far
that this will mark the end of the rally at least in the short term,”
said Matt Buckland, a dealer at CMC Markets.

“Instead, we’re
seeing some profit taking and a reassessment of positions after the
upswing, although there is an element of concern as to the longer term
economic outlook creeping in,” he added.

The upswing seen in the
early part of the week was due to the unveiling of a series of bank
rescue packages from governments around the world to restore confidence.

On
Tuesday, the U.S. government followed Europe’s lead and announced it is
to pump some US250 billion into shares of its leading banks, including
JP Morgan Chase & Co., Bank of America Corp., Goldman Sachs Inc.
and Citigroup Inc.

The long-term key is whether the flurry of
activity can actually break the logjam in credit markets. Despite the
coordinated interest rate reductions announced last Wednesday, and
massive liquidity boosts, the rates at which banks lend remain high,
despite some easing in rates and spreads this week. That could in turn
make it harder for businesses and consumers to get the credit they need
and hurt the economy.

Though the rescue packages have helped
confidence in markets recover somewhat, evidenced by Monday’s record
rise on Wall Street and the modest easing in interbank lending rates,
they will do nothing to prevent a serious economic slowdown.

“The
plans will not be able to avoid a serious fallout of the financial
crisis on the real economy, as the deleveraging currently undergoing in
the financial sector and the confidence effect of recent events on both
businesses and consumers hit Main Street,” said Luigi Speranza, an
analyst at BNP Paribas.

The effect on the real economy was
highlighted Wednesday in Britain with the news that unemployment rose
by another 164,000 between June and August, to 1.79 million. The
biggest rise since 1991 took the official unemployment rate up to 5.7
percent from 5.2 percent in the previous quarter.

“With the UK
heading into recession, we expect this measure to rise by a total of
1.5 million to around 3 million or 9 percent by the end of 2010,” said
Vicky Redwood, an economist at Capital Economics.

Concerns about
the global economic outlook are clear also in the price of oil, which
has fallen another $1.07 to $77.56, near the year lows recorded last
Friday when stock markets around the world collapsed.

Resource
issues have also taken a hit on worries about slowing demand. Shares in
Posco, the world’s fourth-largest steelmaker, lost almost 8.7 percent
in South Korea, while BHP Billiton Ltd, Australia’s largest oil and gas
producer, sank more than 4 percent.

A day after announcing
billions in new spending to protect Australia’s economy, Prime Minister
Kevin Rudd accused Wall Street of “obscene failures” in corporate
governance and blamed “extreme capitalism” for turmoil.

Earlier
in Asia, Hong Kong’s Hang Seng Index lost 834.58 points, or nearly 5
percent, to close at 15,998.30 after rising more than 13 percent the
previous two days. Markets in Australia, South Korea, China, India and
Singapore also sank.

Japan’s Nikkei 225 index bucked the trend,
however, ending up 1.1 percent at 9,547.47. The benchmark soared 14
percent in the previous session _ its biggest single-day gain ever.

In
Hong Kong, Chief Executive Donald Tsang said the meltdown was even
worse than the 1997 Asian financial crisis and would take a far bigger
toll on the global economy.

Major exporters such as Japanese
automakers slumped due to concerns over the U.S. economy, a vital
market for Asian goods. Honda Motor Co. shed 5.23 percent, and Toyota
Motor Corp. lost 1.88 percent.

Source: AP

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