Tuesday October 21, 06:08 PM
Markets wobble on recession fears
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LONDON (AFP) - World (WRGR.TA - news) stock markets tottered Tuesday as investors confronted mixed corporate results in the United States and fretted about fresh warnings of recession there.
Market sentiment swung between optimism stemming from government moves to rejuvenate ailing banks and increasing fears that the world's leading economy was headed for a prolonged economic slump, analysts said.
Following mixed performances in Asia and the start of a downturn in Europe, Wall Street opened under pressure, with the Dow Jones Industrial Average down 0.94 percent at mid-day at 9,178.77 and the Nasdaq (NASDAQ: news) 1.69 percent in negative territory at 1,740.14.
US stocks had surged Monday on signs of momentum behind a second US economic stimulus package and easing interbank credit.
The interbank lending rate, the lifeblood of the global financial system, continued to fall on Tuesday, suggesting that newly confident banks were once again prepared to lend to one another and to businesses.
The key three-month Libor interbank rate in dollars dropped below 4.0 percent to 3.8337 from 4.0587 on Monday.
A high reluctance to lend by banks over the past few weeks, when they feared that borrowing banks might be in severe financial trouble, had contributed to an acute credit crisis that threatened the health of the global financial sector.
But sentiment on Wall Street was dampened Tuesday after a wave of corporate financial results highlighted the challenging economic conditions.
The Canadian central bank declared the US economy in recession as it announced a second unscheduled interest rate cut this month to stimulate domestic demand.
The contracting US economy would lead to a "mild" global recession, the bank warned, following weeks of turmoil on financial markets and tightening credit.
"The global economy appears to be heading into a mild recession, led by a US economy already in recession," said the Bank of Canada as it gave the reasons for its quarter-point interest rate cut.
The International Monetary Fund recently forecast the world's largest economy would shrink in the third and fourth quarters, meeting economists' technical definition of recession as two consecutive quarters of contraction.
Caterpillar (NYSE: CAT - news) , the heavy equipment manufacturer viewed as a bellwether of the US economy, slid 2.59 percent.
But pharmaceutical giant Pfizer (NYSE: PFE - news) rose 2.53 percent after reporting that third-quarter net profit had tripled from a year ago and raised earnings guidance for 2008.
Many Asian and European bourses were lit up earlier Tuesday by hopes that another US stimulus package could help kick-start the American economy and draw a line under the global financial crisis.
The European Central Bank meanwhile said Tuesday it would pump roughly 400 billion euros (530 billion dollars) into eurozone money markets in coming days to get cash flowing in the clogged-up financial system.
French President Nicolas Sarkozy, speaking a day after France agreed to inject 10.5 billion euros into its six leading banks, issued appeals to his European counterparts.
He called for coordinated sovereign wealth funds in Europe and also for an "economic government" to oversee the 15-nation eurozone.
Most European exchanges ended the day with losses, although the CAC 40 (Paris: news) in Paris managed to gain 0.78 percent to close at 3,474.40.
The London FTE 100 index of leading shares shed 1.24 percent to reach 4,229.73 points while in Frankfurt the DAX (Xetra: news) lost 1.05 percent to end the session at 4,784.41.
Elsewhere there were declines of 0.96 percent in Brussels, 1.39 percent in Milan, 1.50 percent in Madrid and 0.50 percent on the Swiss Market Index.
Banks were well-supported thanks to government re-capitalisation moves.
In Paris Credit Agricole leapt 15.74 percent while Societe Generale (Paris: FR0000130809 - news) added 10.23 percent on the day. In Frankfurt, Commerzbank (Xetra: 803200 - news) gained 5.85 percent and Deutsche Bank (Xetra: 514000 - news) 3.39 percent.
In Asia on Tuesday, Tokyo jumped 3.34 percent as Sydney gained 3.9 percent.
On the downside, however, Hong Kong closed down 1.80 percent, Shanghai lost 0.78 percent and Singapore shed 0.95 percent.
China's weaker-than-expected economic growth figures released on Monday highlighted the extent to which the credit crunch has spread around the world.
"While the risks of financial meltdown are receding, the economic downturn is intensifying as data in the US, eurozone and Asia has shown in the last few days," said analysts at UBS (Virt-X: UBSN.VX - news) .
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