World markets hammered over banking fears

The Fed said today that it is increasing the amount of credit it makes available to American banks by $900bn

Graeme Wearden and Richard Wray
guardian.co.uk,
Monday October 06 2008 17:15 BST

Wall Street joined in the global share sell-off today despite another intervention from the Federal Reserve, as fears over the stability of the banking sector sent markets sliding worldwide.

By London market close, the Dow was nearly 4% lower at 9920.61, a fall of 404.77, in further evidence that the $700bn (£380bn) Wall Street bail-out package has done little to reassure investors.

In London, the FTSE 100 index slumped 7.85% to close at 4589.2, 391.1 points down, its biggest ever points fall. Today's fall wipes £93bn off the value of the UK's leading companies.

In percentage terms the index recorded the third worst percentage closing loss in history, beaten only by the crash of 1987 when the index of leading shares lost 10% and 12% in two consecutive days - or roughly 250 points each day.

The contagion in the US financial market has had central bankers and politicians across Europe rushing to reassure savers that their deposits will be protected.

Despite this, many investors have flocked to so-called "safe havens" such as gold. In New York, gold futures have risen 5% today on fears that the $700bn bail-out plan will not be adequate to deal with the growing crisis.

In its latest attempt to bring calm to the markets, the Fed said today that it is increasing the amount of credit it makes available to American banks by $900bn. It said the move should make it easier for companies and individuals to borrow money. But in a sign that many people have little trust in the financial markets, gold futures jumped by over 5%.

Internet auction site eBay joined the list of US companies hit by the downturn by cutting 10% of staff, or around 1,000 workers. Bank of America unveiled an $8.4bn plan that will enable 400,000 mortgage holders to keep their homes, pushing its shares down 8%. This followed its takeover of Countrywide.

The mood in the City was grim today after Europe's politicians failed to agree on a unified bank rescue at a meeting over the weekend. Instead, the raft of individual savings guarantees announced by various European governments left analysts despairing at the lack of cooperation.

"There was a veneer of harmony, but the reality is that it's a case of 'look after your own'," said Manus Cranny of MF Global Spreads.

The chancellor, Alistair Darling, today made a statement on the UK government's plans this afternoon. This follows the first meeting of its National Economic Council this morning, which convened after a weekend of high drama in the banking sector.

• Hypo Real Estate, Germany's second-largest property lender, received a €50bn (£39bn) rescue package after an earlier bail-out failed to ease fears over its future.

• BNP Paribas saved Fortis, agreeing to pay €14.5bn for its banking and insurance operations in Belgium and Luxembourg.

• Icelandic officials were locked in talks all weekend, desperately trying to find the capital needed to rescue its banking sector. Last week Icelandic bank Glitner was nationalised, after bank lending dried up, and there are fears that the whole country is at risk as its currency keeps falling. By Monday morning there was still no sign of a rescue deal, and trading in Icelandic financial institutions was suspended as the Icelandic Crown nosedived by 23%

• Three more European countries – Germany, Austria and Denmark – followed Ireland and Greece's lead by guaranteeing all savings. But the European commission has already warned that such schemes could violate European rules.

• Sweden announced this morning that it has doubled its saving guarantee to 500,000 Swedish kroner (£40,000), and Spain warned that it might also announce a protection scheme unless there was coordinated action across Europe.

• Oil fell by more than $4 to $89.50 over fears of falling demand.

• The Russian stockmarket had to halt trading on three separate occasions because of the intensity of the share selling, with its main index losing over 18%.

• In Brazil, meanwhile, the country's leading index of shares saw trading stopped twice after falls of over 15%.

http://www.guardian.co.uk/business/2008 ... etturmoil2