NEW YORK: An equities rally stumbled yesterday as investors cast doubt on a coordinated global effort to stem a worsening worldwide credit crisis by cutting interest rates, and even safe-haven assets fell as uncertainty ruled the day.
The Dow Jones Industrial Average plummeted 675.97 points or 7.30 percent to close at 8,582.13 yesterday, the seventh straight loss for the Wall Street index.
Demand for government bonds, gold and low-yielding currencies — all recent beneficiaries of a scramble for relative safety as global equity markets tanked — fell.
Expectations that energy demand will fall sharply if the credit crisis pushes the global economy into a prolonged recession pushed crude oil below $83 a barrel.
The yen fell broadly and higher-yielding currencies bounced as extreme risk aversion receded in jittery financial markets.
Key central banks around the world cut rates on Wednesday in a coordinated response to halt the worst financial crisis to sweep the world in almost 80 years. South Korea and Taiwan cut interest rates yesterday. Japan was considering other measures in the face of new recessionary signals.
Rallies in both European and US stocks proved to be short-lived, with a downturn on Wall Street quickly echoed in Europe. Financial and energy shares sold off on both sides of the Atlantic.
US stocks initially rose as investors snapped up beaten-down shares and took heart from strong earnings from technology bellwether IBM after a six-day slide on Wall Street that has pushed the Dow by more than a third a record peak hit exactly one year ago. By mid-morning, however, the bargain-hunting bounce fizzled and the Dow and S&P 500 were lower, although the Nasdaq was slightly higher.
“There’s still a significant amount of nervousness that the credit crisis has not seen its end and there are still more problems that lie ahead,” said Michael James, senior trader at regional investment bank Wedbush Morgan in Los Angeles. “People are scared about what they don’t know and the fear of the unknown is what’s causing people to sell stocks and ask questions later.”
“The market is definitely trading on rumors, not news,” said Matt McCormick, a portfolio manager at Bahl & Gaynor Investment Counsel in Cincinnati.
Gold slipped as investors cashed in gains that took the precious metal to a nine-day high in the previous session. Spot gold prices fell $20.05 to $886.45 an ounce.
US light crude for November delivery fell $2.36 to $86.59 a barrel. London Brent crude fell $1.70 to $82.66 a barrel.
OPEC announced it will hold an emergency meeting on Nov. 18 in Vienna to discuss the impact of the financial crisis on oil markets, which has helped knock prices from a record peak over $147 a barrel in July.
With the $700 billion bailout failing to stem the tide, the United States planned to take equity stakes in banks ahead of a G-7 meeting of economic powers trying to stave off world financial ruin.
The Treasury Department plans to start directly injecting capital in US banks as soon as the end of October, according to a financial policy source familiar with Treasury Secretary Henry Paulson’s thinking.
Finance ministers and central bankers from the Group of Seven major industrial nations will meet in Washington today, with International Monetary Fund Managing Director Dominique Strauss-Kahn calling for more coordination.
The question is what options remain for policy makers to combat the market meltdown, which has destroyed lenders from Wall Street to Iceland to Germany and left people worried about the security of their savings and jobs.
“If you scour the history books, (the steps taken or being considered) are the only policy options of last resort,” said David Mackie, head of Western European economic research at JPMorgan.