Markets fall over US recession fear

European and US stocks fail to follow Asian recovery as US economy worries persist.

    The president of the European Central Bank indicated European interests rates would not be slashed [EPA]

    Rate concerns

    Investors indicated that they believe much more needs to be done by the US central bank to shore up the US economy, which some see as on the brink of recession, having been hit by a slumping housing market and tight credit conditions.

    In video

    US homeowners face foreclosures

    On Tuesday, the Federal Reserve cut its key federal funds rate by 75 basis points, the largest cut in more than 23 years, to 3.5 per cent.

    The cut was made a week before its scheduled meeting, underscoring the risks facing the US economy.

    However, the feeling in European stock markets was that Europe's central banks would not follow suit.

    Comments by Jean-Claude Trichet, the European Central Bank (ECB) president, that the ECB needed to stay focused on fighting inflation in the face of a very significant market correction appeared to support this view.

    Confidence shaken

    After rising as much as 1.6 per cent, the FTSEurofirst 300 index of top European shares reversed direction on Wednesday and fell 1.7 per cent with Germany's DAX falling 2.7 per cent and the London's FTSE down 1.5 per cent.

    Meanwhile, in New York the Dow Jones was also significantly down after early trading on Wednesday.   

    Earlier in Asia there had been a two per cent rebound for Japan's benchmark Nikkei and a 10.72 per cent rise in Hong Kong's Hang Seng Index.

    For many analysts, the scale of the Federal Reserve's move seemed to have shaken confidence in the system.

    Eugen Weinberg, at Commerzbank in Germany, said: "The Fed's move implied that the problems in the system are much worse than we expected."

    SOURCE: Agencies


    How different voting systems work around the world

    How different voting systems work around the world

    Nearly two billion voters in 52 countries around the world will head to the polls this year to elect their leaders.

    How Moscow lost Riyadh in 1938

    How Moscow lost Riyadh in 1938

    Russian-Saudi relations could be very different today, if Stalin hadn't killed the Soviet ambassador to Saudi Arabia.

    The great plunder: Nepal's stolen treasures

    The great plunder: Nepal's stolen treasures

    How the art world's hunger for ancient artefacts is destroying a centuries-old culture. A journey across the Himalayas.