Friday October 24, 06:30 PM
Stocks hit again but European exchanges trim losses
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LONDON (AFP) - World (WRGR.TA - news) stock markets plunged deep into negative territory Friday as gloom gathered over the global economy and dismal corporate news left investors stunned.
"Everyone is staring at their screens in disbelief," said Tom Hougaard, chief market analyst at City Index.
Wall Street and leading European exchanges nonetheless managed to trim their losses late in the European trading day.
On Wall Street the Dow Jones Industrial Average plunged 4.69 percent near the start of trade but was later down 2.17 percent at 8,502.96 mid-day. The tech-heavy Nasdaq (NASDAQ: news) saw a dive of 5.41 percent, which it later reduced to a loss of 2.34 percent at 1,566,43.
Earlier in the day markets in Asia and Europe were hit with a tidal wave of panic, sparked by mounting evidence that major economies are heading for recession from a credit crunch and a banking crisis.
"We have now reached a point where fundamentals and long-term valuation considerations do not matter any more for financial markets," said economist Nouriel Roubini at New York University.
In London the FTSE 1OO closed 5.0 percent in negative territory at 3,883.36 after having shed more than 9.0 percent earlier in the day.
In Paris the CAC 40 (Paris: news) index fell 3.54 percent to 3,193.79, after losing more than 8.0 percent, while in Frankfurt the Dax (Xetra: news) came back from a more than 10 percent slide to finish at 4,519.70, down 4.96 percent.
Elsewhere in Europe, Madrid fell 5.20 percent, Brussels 4.14 percent, Milan 5.61 percent and the Swiss Market Index 3.71 percent.
In Asia, Tokyo sank nearly 10 percent and Hong Kong wilted as concern grew that the chronic financial crisis was taking a heavy toll on company earnings.
"There is a free fall as most investors are rapidly deleveraging and we are on the verge of a capitulation collapse," Roubini said.
"What matters now is only flows -- rather than stocks and fundamentals -- and flows are unidirectional, as everyone is selling and no one is buying, as trying to buy equities is like catching a falling knife," Roubini said.
"There are no buyers in these dysfunctional markets, only sellers and panic is the ugly state of this destabilizing game."
The rout that began the day in Asia was driven by corporate earnings news, with technology giant Sony (Munich: 853687 - news) , a bellwether of corporate Japan, forecasting net profit of 150 billion yen (1.28 billion dollars) for the year to March, down 59 percent from the previous 12 months.
In Asian trade, Tokyo lost 9.60 percent, ending below the key 8,000-point level for the first time in more than five years as the yen soared and after the profit warning from tech giant Sony. The Hong Kong market closed with a loss of 8.3 percent.
South Korean shares dived Friday by 10.6 percent -- a day after a 7.4 percent plunge -- after the domestic economy grew at its slowest pace for four years and Samsung Electronics reported a sharp drop in quarterly profit.
The sell-off came as Asian leaders meeting in Beijing agreed to set up an 80-billion-dollar fund to fight the global economic crisis.
The deal between South Korea, China, Japan and the 10 members of the Association of Southeast Asian Nations is the first major coordinated regional action since the full force of the financial turmoil erupted last month.
European investors later took their lead from news that the British economy contracted 0.5 percent in the three months to September in the first quarterly contraction since 1992.
"It was no real surprise to markets that the UK economy shrunk in the third quarter -- but the concern now is that the slowdown could end up being much worse than expected," said IG Index analyst David Jones.
Britain had already shown flat performance in the second quarter with zero growth. However, the economy is not officially in recession unless it reports two quarters running of negative economic growth, or contraction.
Governments around the world have pumped cash into the banking system in recent weeks to try to contain what former Federal Reserve chairman Alan Greenspan described Thursday as a "once-in-a-century credit tsunami."
While there have been some tentative signs of an easing of the credit crunch, concerns are growing about the worsening outlook for economic growth and corporate earnings.
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