Debt crisis: US markets slump again as investors sell off shares
Published 10/08/2011 | 14:59
US stocks opened down nearly 2pc this afternoon following a short-lived rally.
Investors fears about a new recession and global debt are overriding the US Federal Reserve’s decision to keep interest rates at an all-time low.
The Dow Jones industrial average was down 205.06 points, or 1.82pc, at 11,034.71 points while the Nasdaq fell 64.20 points, or over 2.5pc, at 2,418.32.
Earlier markets in Europe had bounced taking their lead from gains on Wall Street last night and later Asian markets.
The FTSE 100 Index opened nearly 2pc higher today after it was boosted by overnight rallies which saw the Dow Jones Industrial Average in the US rise by 4pc, while Asian markets also made progress.
The US Fed said it would keep interest rates at near zero until the middle of 2013 to help the ailing economy.
World markets have been in turmoil for more than a week as investors feared that the debt crises in the US and the eurozone would lead the global economy back into recession.
Markets have become increasingly fearful about the world's biggest economy after its recovery slowed in recent months and credit ratings agency Standard & Poor's stripped the US of its prized AAA status.
World markets have fallen some 15pc since July 22, which has wiped about $4 trillion £2.5 trillion) from their value.
Although the Fed disappointed markets by failing to announce fresh stimulus measures by pumping money into the economy, it said it had discussed the range of tools at its disposal, which hinted that more money printing could be on the cards.
And the pledge that interest rates would stay "exceptionally low" for at least two years had helped restore some confidence to beleaguered markets, although this was short-lived.
Analysts have warned that markets will still show volatility because the underlying cause of the recent bloodbath had not been solved.
Ben Potter, market strategist at IG Markets, said: "The reasons behind the recent turmoil - slowing US growth and European debt contagion - are still present.
"Our view is that the recent rally was nothing more than a very aggressive short covering rally - if you stretch the rubber band enough one way, it will eventually snap back hard in the opposite direction."
He added that the Fed was effectively "out of bullets" because its options to inject fresh life into the sluggish economy were limited.
Eurozone leaders intervened this week by buying bonds to shore up the finances of debt-ridden Spain and Italy, which has also helped to restore confidence in markets.