Stocks plunged at great speed in Europe and on Wall Street on Wednesday led by bank shares amid new concern over Greece, and talk of danger for France's credit rating which was immediately denied.
The slump of up to six per cent and more than four per cent on Wall Street, coupled with a record rise of gold, came only a day after markets soared on strong signals by the US Federal Reserve that it would hold low interest rates for two years
The stocks slump marked a sudden switch from a modest rally in early European trading on emergency action by the US and European central banks to fight the fires of debt and economic slowdown eating ever deeper into confidence.
In late afternoon stock trading, Frankfurt's DAX index dropped 4.47 per cent to 5,652.59 points and Paris' CAC 40 dropped 4.30 per cent to 3,039.62 points, while in Milan the FTSE Mib fell 4.42 per cent to 15,027 points.
London's benchmark FTSE 100 index was down 0.96 per cent, also hit by news that the Bank of England has downgraded its 2011 British economic growth forecast.
In the United States, in morning trading, the Dow Jones Industrial Average fell more than 4.0 per cent, the broader S&P 500 index was down 3.5 per cent and the Nasdaq dropped 3.4 per cent.
Shortly before Wall Street opened, banking stocks turned the European rally into a rout, apparently on a mixture of factors: renewed concerns about Greece after the finance minister made comments on procedures for the eurozone rescue bond swap, concern about France's credit rating and rumours France might increase taxes on banks.
The French finance ministry categorically denied the rumour of a downgrade and Futch rating agency said that its rating for France was the top 'AAA'. However, a central uncertainty for markets is whether the new EU EFSF rescue fund will be increased, and many analysts say that if it were, the burden would cost France its top rating.
In Paris, shares in Société Generale, were showing a loss of 13.1 per cent, having crashed by 20 per cent.
In Madrid, an analyst at IG markets, Soledad Pellon Bannatyne, said that Spanish bank shares had fallen in line with French bank shares which had dropped because of 'their exposure to Greek debt'.
She said: 'French banks are being attacked so strongly that this has spread via falls throughout the European banking sector.'
The French president's office said after a government meeting that within two weeks France would announce extra action to ensure that it meets tough targets on cutting its budget deficit.
In London afternoon trading the price of shares in Standard Chartered bank was showing a loss of 6.34 per cent, Barclays was down 6.30 per cent, Royal Bank of Scotland was down 5.5 per cent and HSBC was down by 4.11 per cent.
In Madrid, stock in Santander bank were down 7.13 per cent and BBVA was down by 6.35 per cent.
The Italian prime minister Berlusconi was holding urgent talks with employers and unions on yet more action to cut the public deficit and boost the economy.
This was the day after the head of the European Central Bank Jean-Claude Trichet had made public in the bluntest terms that he had told Italy and Spain what they had to do in return for ECB support for the eurozone system.
The US Federal Reserve then took action mainly at supporting the US economy and warding off the threat of a double dip recession, now the overall driving concern for global markets, by giving exceptionally revealing information that the Fed would keep interest rates at very low levels for about two years.
The actions by the ECB, principally the resumption of purchases of bonds issued by eurozone countries in distress, paid dividends initially, when European markets firmed and Italy was able to sell debt at sharply reduced rates.
The positive mood on Tuesday had spilled over into Asia earlier on Wednesday. Tokyo rose 1.05 per cent, Sydney added 2.64 per cent and Seoul gained 0.27 per cent.
Hong Kong meanwhile jumped 2.34 per cent, bouncing back after a disastrous showing on Tuesday when it lost 5.66 per cent. Shanghai gained 0.91 per cent.
Source : New Age
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