'Fear, panic' driving global banking crisis
NEW YORK (AFP) - US and European stock markets slid Thursday as jitters mounted over the widening global financial crisis despite drastic actions by authorities to contain the turmoil.
US shares plumbed fresh five-year lows in a headlong late-date selloff.
The Dow Jones Industrial Average plunged 678.91 points (7.33 percent) to end at 8,579.19, the seventh straight loss for the blue-chip Wall Street index and the first close below 9,000 since 2003.
The Nasdaq slumped 95.21 points (5.47 percent) to 1,645.12 and the Standard & Poor's 500 index retreated 75.02 points (7.62 percent) to 909.92.
Analysts said markets, which sustained huge losses on Wednesday, were still being driven by fear and panic in the midst of a global banking crisis that showed few signs of easing.
"Continued nervousness about the economy and the inability of the Fed and the Treasury to break the logjam in the credit markets is pumping up the pessimism," said analysts at Charles Schwab & Co.
"This cascading waterfall selloff is ugly," said Barry Ritholtz at Ritholtz Research.
"Where do we go next -- are we close enough to a bottom to buy, or are we heading much lower?"
The huge Dow selloff came ironically a year after the blue-chip index had hit a record high of 14,164.53, marking a 39 percent tumble over the past 12 months.
Analysts at Bespoke Investment Group noted that US regulators as of Thursday had lifted a temporary bank on "short" sales that allow investors to bet on declining share prices.
"Credit markets are still frozen and banks have the exact same problems that they had the day before the 'No Short' rule" was lifted, the analysts noted.
Investors mulled news that US authorities were eyeing the possibility of direct capital injections to troubled banks as a means of shoring up a fragile system.
Such a move, already announced by British authorities, would give the government special shares of the banks in exchange for helping boost badly needed capital in an effort to unclog credit markets, analysts said.
John Ryding at RDQ Economics said such a move would help stabilize the banking system and go a long way toward easing the crisis.
"If Treasury Secretary Henry Paulson follows (British officials') advice, we could finally have found our wider firebreak," he said.
Share prices fell sharply late in the day in Europe despite a decision by the European Central Bank to offer an unlimited cash lifeline for credit-starved institutions.
The ECB, which joined the coordinated interest rate cuts by leading central banks on Wednesday, said it would give institutions in the 15-nation eurozone unlimited access to cash until at least late January as it steps up the fight.
In another move aimed at unblocking credit, the ECB pumped 100 billion dollars (74 billion euros) into markets in one-day loans, doubling the amount offered just two days earlier.
Bank of America economist Gilles Moec said: "The ECB has just taken decisive steps to unclog the interbank market."
Belgium, France and Luxembourg meanwhile came to the rescue of struggling Dexia bank for the second time in less than two weeks, pledging to guarantee money it borrows on markets.
After nationalizing the group, the three governments offered the guarantee to avert a cash crisis at Dexia as lending between banks has come to a standstill.
European investors initially took heart, driving prices higher until an early rally on Wall Street ran out of steam, denting sentiment across the Atlantic.
The London FTSE 100 index of leading shares fell 1.21 percent to 4,313.80 while in Paris the CAC 40 shed 1.55 percent to finish at 3,442.70. The Frankfurt Dax lost 2.53 percent at 4,887 points.
Bucking the trend was Moscow, where the leading stock markets closed around 10 percent higher, rebounding from the previous day's sharp losses amid global financial turmoil.
The headline index on the dollar-denominated RTS finished the day up 10.91 percent at 844.75 points compared with Wednesday, when it had tumbled 11.25 percent after a bloodbath on Asian markets.
On the ruble-based MICEX stock exchange, the benchmark index finished 9.80 percent above the previous close at 700.37 points, regaining most of its value after Wednesday's 14-percent nosedive.
In Asia, Tokyo ended down 0.5 percent but Hong Kong surged 3.3 percent after it joined South Korea and Taiwan in reducing borrowing costs Thursday.
Central banks in the United States, Canada, Europe and China on Wednesday lowered interest rates in a bid to tackle an escalating economic crisis.
"The market finally got the coordinated action it was crying out for, when most of the major central banks cut rates," Calyon analyst Stuart Bennett said.
The key problem confronting -- and confounding -- economic policymakers around the world were virtually frozen credit markets, with cash-strapped banks fearful of lending money despite inducements to do so from central banks.
In Latin America, Brazilian stocks fell a hefty 3.92 percent, with the Ibovespa index in Sao Paulo scraping two-year lows.
Argentina's Merval index plunged 4.99 percent to its lowest level since April 2005.