Wall Street lows rocks world markets

February 24, 2009 4:47:32 AM PST
World stock markets fell Tuesday as hopes of a speedy fix for the U.S. banking sector dissipated and pushed Wall Street to 12-year lows. Renewed fears about the capital position of some of the world's leading financial firms also weighed on sentiment.[CHECK THE MARKETS: Get the latest numbers from Wall Street]
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Markets initially breathed a sigh of relief on weekend reports that the Obama administration was looking to only take a stake in Citigroup Inc. instead of fully nationalizing it, but remain rattled about the lack of details.

"As always the devil is in the detail and at the moment the market is rattled by the perception that there is not enough detail as to what these plans will actually mean and how long they will take, with each actual, or rumored policy announcement providing more questions than answers," said Stuart Bennett, an analyst at Calyon Credit Agricole.

The FTSE 100 index of leading British shares was down 41.70 points, or 1.1 percent, at 3,809.03, while Germany's DAX slid 99.10 points, or 2.5 percent, to 3,837.35. The CAC-40 in France was down 50.48 points, or 1.9 percent, to 2,677.39.

Earlier, Japan's Nikkei languished near 26-year lows, closing down 107.60 points, or 1.5 percent, to 7,268.56, while Hong Kong's Hang Seng index sank 376.58, or 2.9 percent, to 12,798.52.

The losses in Europe and Asia came after hefty selling in the U.S. on Monday even though the Obama administration tried to pacify fears, saying it would launch a revamped bank rescue program this week. The Dow Jones industrial average plunged 250.89, or 3.4 percent, to 7,114.78. It last closed this low on May 7, 1997 when it finished at 7,085.65. The Dow hasn't traded below the 7,000 mark since October 1997.

While the Standard & Poor's 500 managed to close above its Nov. 21 trading low ? considered a key threshold among investors ? it still took a beating. The benchmark fell 26.72, or 3.5 percent, to 743.33. It was the lowest close since April 11, 1997.

Modest gains are expected when Wall Street opens later. Dow futures were pointing to a 42 point, or 0.6 percent, gain at the open to 7,158, while S&P futures were 5.4 points, or 0.7 percent, higher at 750.40.

David Jones, chief market strategist at IG Index, thinks the next few days "really do look like crunch time" for world stock markets, as the late 2008-early 2009 gains have been given back.

"Unless some half-decent strength is seen in the short term, then the rally from last November looks like yet another dead cat bounce for markets, and it is time to brace ourselves for the next real lurch downwards," he said.

A "dead cat bounce" is market slang for a temporary recovery that does not imply reversal of the downward trend.

Without any improvement in the underlying strength of the financial sector, investor hopes of a global economic recovery remain thin on the ground. And the newsflow from the sector continues to be downbeat.

Earlier, shares in Nomura Holdings, Japan's biggest broker, slumped over 9 percent after it said it was looking to raise over $3 billion more in capital by selling shares to shore up its capital base, while shares in Axa SA, Europe's second largest insurer, dropped 6 percent on mounting concerns about its capital position.

And in the U.S., bailed-out insurer American International Group Inc. said it is evaluating "potential new alternatives" to tackle its continuing financial problems amid reports it will soon announce a $60 billion loss and ask the government for more aid.

After the markets closed, JPMorgan Chase said it was slashing its quarterly dividend to preserve capital in case economic conditions drastically worsen.

U.S. investors seemed unconvinced after regulators promised to ensure the viability of banks by providing capital and said they would start conducting "stress tests" on Wednesday to gauge the health of financial firms.

Elsewhere in Asia, South Korea's Kospi fell 3.2 percent to 1,063.88, while mainland Chinese shares, among the year's best performers, got slammed, pushing the Shanghai benchmark down 4.6 percent.

Sentiment there also took a hit after China's central bank said the country's economic downturn could worsen and warned the risk of deflation is "quite big" amid collapsing consumer demand. The bank's report could temper expectations that China's slump might be bottoming out and a recovery might be taking shape,

Elsewhere, Australia's stock measure was off 0.6 percent, and Singapore's benchmark lost 1 percent.

Oil prices were steady, with light, sweet crude for April delivery up 2 cents at $38.46 a barrel the New York Mercantile Exchange. The contract lost 4 percent, or $1.59, to settle at $38.44 overnight.

In currencies, the dollar strengthened 0.8 percent to 95.54 yen. The euro was up 0.8 percent at $1.2799.

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