World stock markets mostly slumped yesterday, with Europe’s main indices down about 2 percent early on, as a rally lost momentum amid growing fears of recessions in some of the biggest economies.
Investors took profits in Asia and Europe after stocks ended lower overnight on Wall Street, despite news that Washington would inject up to US$250 billion into ailing banks to try to end the worst financial crisis since the 1930s.
One bright spot was Tokyo, which ended up 1.06 percent, building on Tuesday’s record 14 percent surge. But Hong Kong closed down 5 percent, Seoul slid 2 percent and Sydney ended 0.9 percent lower.
In early European trade, London shed 2.22 percent, Frankfurt lost 2.35 percent and Paris was down 1.94 percent. Madrid slid 1.15 percent and Zurich dropped 1.33 percent.
“After the early burst of euphoria on stock markets over the rescue packages launched worldwide ... the dust slowly seems to be settling and the last few days’ roller coaster [higher] is being followed by a kind of morning-after sentiment,” Commerzbank analyst Antje Praefcke said.
A top US central banker said on Tuesday that the US “appears to be in a recession.”
There are also growing fears Japan and Europe are heading for a spell of economic stagnation or recession.
The German economy is heading for a slowdown, but the downturn will not be a long-lasting one, German Chancellor Angela Merkel said yesterday.
“We had a couple of good days [on stock markets] and it’s not surprising to see some profit-taking,” Nomura Australia markets strategist Eric Betts said.
Many investors took profits after Wall Street’s Dow Jones index closed down 0.82 percent on Tuesday, shedding early gains.
Nine large banks — including Citigroup, JPMorgan Chase and Goldman Sachs — agreed to give the US government equity stakes in exchange for new capital, under the first program of its kind in the US since the Great Depression, officials said.
On Monday, the Dow had registered its biggest points rise in history and its biggest rally in percentage terms since 1933 as markets around the world reacted to government intervention to tackle the financial crisis.
“All the good news has now come out,” said Masatoshi Sato, a broker at Mizuho Investors Securities. “Attention has now shifted to the real economy.”
The Saudi stock market, the largest in the Middle East, dived 7.8 percent at the opening of trade yesterday following two days of impressive gains.
Janet Yellen, the head of the San Francisco branch of the Federal Reserve, said the US economy appeared to already be in a recession, which is usually defined as at least two quarters of economic contraction.
“By now, virtually every major sector of the economy has been hit by the financial shock,” she said in an address in Palo Alto, California.
Markets across the globe have been extremely jittery since the middle of last month when Wall Street investment bank Lehman Brothers filed for bankruptcy after the US government refused to bail it out.
While panic selling on global markets has subsided for now, there are still deep concerns about the outlook for the US and global economies.
“The US government’s bailout plan is not going to get the economy back on its feet anytime soon,” analysts at investment bank Calyon said. “Markets will increasingly brace for a long and deep recession in the US and a recession to varying degrees globally.”
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