Mounting fears of global recession sent New York's Dow Jones Industrial Average plunging through the 9000-point mark last night.
Mounting fears of global recession sent New York's Dow Jones Industrial Average plunging through the 9000-point mark last night.
The Dow finished 678.91 points lower at 8579.19 points - racking up its seventh consecutive session of losses and signalling further trouble for the UK stock market when it reopens this morning. Shares in General Motors dived to a 58-year low, shedding more than 30% of their value, and investment bank Morgan Stanley tumbled more than 25% after a ban on short-selling expired.
Share markets in London and most other European financial centres had retreated in late dealing yesterday after Wall Street dived into the red soon after the opening bell and the crisis in Iceland grew worse, forcing the island nation to close its stock exchange for two days and nationalise its top bank - Kaupthing.
Earlier, European exchanges had posted robust gains led by financials, oils and miners. Co-ordinated interest rate cuts in the United States, Canada and Europe on Wednesday had also given shares an additional boost.
But the advance on this side of the Atlantic collapsed after US stocks fell in choppy trading as persistent fears that the widening credit crisis will tip the global economy into recession derailed an attempted rebound.
Jittery US investors also weighed up news that the Federal Reserve's rate cut failed to pull down bank-to-bank lending rates yesterday, and the amount of commercial paper in the market fell for the fourth straight week. Both developments were signs that the credit markets - where companies and investors go to borrow and lend - are still operating abnormally in the wake of the bankruptcy of Lehman Brothers Holdings and the downfall of other financial companies.
Having failed to unlock jammed credit markets, US Treasury officials said yesterday the government's $700bn Wall Street bail-out package gives them the authority to inject cash directly into banks that request it.
Such a move would quickly strengthen banks' balance sheets and, officials hope, persuade them to resume lending. In return, the law gives the Treasury the right to take ownership positions in banks, including healthy ones.
The Treasury plan is still preliminary and it was unclear last night how the process would work. The proposal resembles one announced on Wednesday in the UK, which involves the provision of up to £50bn of capital.
The City's generally positive reaction to the UK rescue package has helped shares in the two big UK banks which have suffered the biggest slide in their stock. HBOS stock closed up 31%, while Royal Bank of Scotland added 6% but Barclays fell 13% on speculation it will seek to tap shareholders rather than the government to strengthen its balance sheet.
The UK's FTSE-100 benchmark index closed 52.9 points, or 1.2%, lower at 4313.8.
Banks were generally firmer on the eurozone exchanges. In Germany, Hypo Real Estate Holding, which has received a government-sponsored rescue, was up 10% and Commerzbank was 4% firmer. And the news that the governments of France, Belgium and Luxembourg will give struggling lender Dexia a year-long guarantee on its new loans and deposits, sent the company's shares soaring by 18%.
Spanish-based Santander, which has a big presence in the UK, bucked the winning trend, sliding by 4.3% Europe's stock markets, which had traded as much as 3% higher, slipped back along with the Dow. Germany's DAX closed 126.62 points, or 2.5%, lower at 4887.00, while France's CAC-40 ended down 54.19 points, or 1.2%, at 3442.70.
Meanwhile, the OMX Nordic Exchange Iceland said the decision to halt trading was due to "unusual market conditions", adding that the market will not reopen until Monday.
Iceland is sinking deeper into financial turmoil as its top-heavy banking system collapses.
The Icelandic government now has control of all three of the country's major banks - Kaupthing, Landsbanki and Glitnir - as it struggles to contain the panic.
In economic news, European central banks continued to push liquidity at the financial sector offering $120bn in combined overnight operations that were well subscribed.
The European Central Bank, representing the 15 countries that use the euro currency, offered $100bn and got bids for more than $116bn from 66 bidders. The marginal rate on the money was 5%.
The Bank of England offered $10bn and said it got bids for $9.921bn. The offer was for a maximum of 10 bidders and the weighted average accepted rate on the money was 3.075%.
The Swiss National Bank also offered $10bn and said it got bids for $11.2bn from 14 institutions. The weighted average interest rate on the money was 3.44%.
In New York, a dis- appointing trading update from General Motors reinforced fears about the state of the global economy and offset good news from IBM.
