Dow gain bucks global stock slide
The markets were surprised by the speed and size of recent
declines
Worldwide share prices have continued to fall following Tuesday's
heavy losses, although the key US Dow Jones index showed some signs
of recovery.
Markets across Europe and Asia remained deep in the red, triggered
by 9% losses in Shanghai the previous day.
London's FTSE 100 index closed down 114.6 points, or 1.8%, at
6,171.5.
However the Dow, which closed down 416 points - or 3.3% - on
Tuesday, clawed back 52.39 points, or 0.43%, to end the day at
12,268.63.
News of a slump in sales of new US homes, and a downgrading of
estimates of US growth, failed to dent the Dow, which earlier in
the day rose by as much as 137 points before falling back.
The White House refused to comment on events on US and global stock
markets, but a spokesman said "the fundamentals are very
strong".
Federal Reserve chairman Ben Bernanke added that Tuesday's stocks
slide had not changed the Fed's outlook for moderate US
growth.
In Europe, France's Cac 40 index dropped by 1.3% and Germany's Dax
lost 1.5%.
Too high, too fast
Earlier, markets in Asia, Australia and India had all suffered
substantial losses. Investors are questioning the outlook for
economic and earnings growth.
The current global stock sell-off was fuelled by speculation that
China's government would try to clamp down on illegal share trading
and might impose a capital gains tax on stock market
earnings.
This sort of move by the market is a little worrying, and it looks
like it has been caused by a build-up of concerns in recent
days
Angus Campbell, Finspreads
Stock prices and indexes had climbed to record levels in a number
of key world markets, prompting some analysts to fear that shares
may have gone too high, too fast.
In Japan, the Nikkei 225 share index closed down 515.8, or 2.9%,
lower at 17,604.1, while in Hong Kong the Hang Seng index fell
496.36, or 2.5%, to 19,716.5.
The question facing many investors is how far and how long the fall
in prices will last and whether or not the bull run that has driven
stocks and indexes higher has now broken.
"I see it as a correction within a bull market," said James Hong,
head of equity derivatives trading at Dresdner Kleinwort.
"We were looking for some sort of correction overall. It is a
little bit surprising to have it all happen at the same
time."
Even if a market's upwards trend is not broken, a market correction
can still be significant, analysts said.
In May last year, the UK's FTSE 100 lost more than 9% as concerns
about high oil prices and political global instability combined to
impact on world markets.
Wide impact
China has been one of the main emerging markets for many investors,
and its main stock index had more than doubled in value during the
past year.
Stock markets have recovered strongly over the past four
years
At the same time, key indexes in Asia such as Japan's Nikkei 225
were pushing to their highest levels in seven years.
Some analysts fear the fall in share prices may last a number of
weeks rather than days.
"This sort of move by the market is a little worrying, and it looks
like it has been caused by a build-up of concerns in recent days,"
said Angus Campbell, a trader at Finspreads.
"Memories of last May's correction have sent shivers through
investors' spines as many market participants have used futures
contracts to run for cover."
The worries hammered China's Shanghai index by nearly 9% on
Tuesday, giving it its worst day in a decade.
Bounce back?
The China wobble rippled out across Europe on Tuesday, and hit the
US later in the day where it coupled with disappointing economic
figures to push the Dow Jones 3.3% lower by the close of
trading.
The shocks of the market correction set off by China are still
being felt around the world as the hangover continues
Matthew Bristow, Pacific Continental Securities
Asian markets picked up on this negative sentiment, and India's
Sensex fell more than 3.8% on Wednesday.
Australia's main stock index shed as much as 3.5% and at one point
was trading at a five-week low, before closing down 2.7%.
Despite the declines, by lunchtime on Wednesday there were signs of
a recovery in the US markets and stock futures indicated that the
key indexes would open higher.
A lot will depend on the strength of the US economic figures due
out later today, analysts said.
"The shocks of the market correction set off by China are still
being felt around the world as the hangover continues to dampen
investor mood," said Matthew Bristow of Pacific Continental
Securities.
"This will mean that investors will be more critical of economic
data as the current state of the economy is still of uncertainty
and the perfect storm caused panic within the markets," he
added.