US shares fall below 7,000 level to 12-year low
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.
Related Links
* Bank fears send FTSE 100 to six-year low
* AIG unveils $62bn loss, the largest in US history
* HSBC shares dive 19% on record £12.5bn cash call
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.