ECB action fails to quell double dip fears

Claire Murphy

THE European Central Bank (ECB) stepped in to prevent market meltdown today and announced it would buy Italian and Spanish bonds.

But the move appeared to do little to quell traders' fears of a double dip recession as they continued selling this morning at the start of a second tumultuous week on the markets.

The ISEQ fell down 0.68pc to 2,489, the FTSE 100 dropped 1.2pc at opening at 8am to around 5,193, Germany's Dax fell 0.5pc and the CAC40 dipped 0.13pc.

The forced move from the ECB came late last night after a weekend of frantic talks between European leaders as markets went into freefall.

The governing council of the ECB attempted to ease market tensions temporarily when it revealed it would purchase bonds in the two massive economies of Italy and Spain for the first time.

The pressure on Italian and Spanish government debt eased sharply this morning as a result.

The ECB intervention last night is one which investors have been calling for -- but some fear it may be too late.

And some investors, as well as council members, believe that the ECB is poisoning itself by buying its own bonds.

"It's clear that a lot of people involved in the ECB are not happy with this and don't believe that it is something which the ECB should be forced into doing," said Friends First chief economist Jim Power.

Financial bookmakers expect share values to fall in Irish and European markets over the course of the day -- ultimately having further knock-on effect for pension holders with funds exposed to the stock market.

The ECB said last night that it welcomed announcements by Spain and Italy of "new measures and reforms" and urged both governments to roll them out swiftly.

However, the exact quantity of bonds has not been revealed.

Meanwhile, Asian stock markets have been setting the tone of reaction today.

Stocks nose-dived in Asia this morning as the first-ever downgrade of the US government's credit rating jolted the global financial system.

Hong Kong's Hang Seng tumbled by 4pc to 20,109.49 and Japan's Nikkei was down 1.3pc to 9,178.03.

Asian markets depend heavily on trading to the US -- and prospects of growth were hammered in last week's drama.

The mass dumping of stocks and shares on European and US markets culminated in a downgrading of the US by ratings agency Standard & Poor's.

The burst of activity underscored how government debt levels in Europe and the US have unsettled financial markets -- and sharpened fears that debt troubles could derail the global recovery from the 2007-09 crisis.

Oil prices extended recent sharp losses, trading below $84 a barrel on expectations that weaker global growth will crimp demand for crude.

The Group of Seven major industrial nations also stepped in to the crisis and reaffirmed their vow to support financial market stability and growth.

And IMF chief Christine Lagarde yesterday welcomed pledges by the European Central Bank, as well as France, Germany and the G7, to take all necessary measures to stabilise the financial markets.