US shares fall below 7,000 level to 12-year low
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The global rout in global stocks spread to the US market today, sending America’s blue chip index plunging below the 7,000-mark for the first time since April 1997.
As Gordon Brown, Britain’s Prime Minister, headed to Washington for talks with President Obama to examine ways of lifting the world out of recession, the Dow Jones industrial average touched its lowest level for 12 years and lost 209.71 points, or 3 per cent, to 6,851.37.
In London, the leading FTSE 100 index took a fall of 204.26 points, or 5.2 per cent, to close at 3,625.83, — a six-year low — sparked by fears over the banking sector after HSBC detailed plans to raise £12.5 billion in the largest cash call in UK corporate history. Investors were also continuing to reel over a sharp contraction in the US economy during the final three months of 2008.
HSBC’s cash call dragged other bank shares lower, and sent investors running for cover in Europe, where France’s CAC index lost 4.48 per cent and the DAX in Germany shed 3.25 per cent.
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Concerns over the global financial sector sparked the sale in US shares, after AIG, the US insurance, reported a quarterly loss of $62 billion, the largest in American history, as well as securing a further $30 billion in government funding.
Freddie Mac also announced that it had netted a further funding from the Government, believed to be between $30 billion and $35 billion as it announced that David Moffett, the chief executive drafted in by the Bush administration to oversee the struggling insurance group, was leaving after only five months in charge.
In the UK, aside from fears about HSBC, investors were also anxious about this week’s Bank of England interest rate decision, when borrowing costs are expected to be cut by a further half percentage point to a new low of 0.5 per cent.
It is also widely expected that the Bank will go ahead with plans to begin quantitative easing, which is a method to increase money supply into the British economy.
Darren Winder, equity strategist at Cazenove, the broker, said: “The capital rising from HSBC is obviously a major market issue. But more generally it is the weakness of the US market from Friday that is weighing heavily on the markets.
“The big picture is still one of a profit picture, which is under strong downward pressure and people are finding it very difficult to get comfortable with valuations against that sort of backdrop.”
At the weekend Warren Buffet, the legendary investor and chairman of Berkshire Hathaway, said the economy would remain a “shambles” during 2009 and beyond.
