Markets tumble as recession fears trump bailout
NEW YORK (Reuters) - Gloomy economic data and warnings from the U.S. Federal Reserve that hard times were still to come wiped out two days of relative optimism about the credit crisis and sent markets into free-fall on Wednesday.
The Dow Jones industrial average ended down 733 points or 7.87 percent, and the S&P 500 index lost 9 percent -- their worst one-day percentage declines since October 1987. The losses reversed Monday's record surges that had been sparked by optimism about bank bailouts.
Fed Chairman Ben Bernanke warned that credit market turmoil posed a "significant threat" to an already weak economy as new data reinforced signs of further slowing.
European shares shed 6 percent and U.S. crude fell more than $4 a barrel to a 13-month low of $74.54.
France, Britain and Germany led calls for an overhaul of the world financial system to prevent a repeat of the worst credit crisis since the Great Depression.
The White House said leaders of the Group of Eight nations were expected to meet on the crisis by the end of the year.
The United States reported its biggest monthly decline in retail sales in more than three years, and Europe offered negative economic data and outlooks of its own.
Governments around the world have pledged $3.2 trillion in emergency measures, including taking stakes in banks to help them stabilize, rallying world markets on Monday.
Optimism quickly gave way to fears that major economies were headed for recession despite government intervention.
"By restricting flows of credit to households, businesses, and state and local governments, the turmoil in financial markets and the funding pressures on financial firms pose a significant threat to economic growth," Bernanke said.
Suggesting an openness to further interest-rate cuts, Bernanke said concerns about inflation were diminishing. He said it would take time to restore normal flows of credit.
U.S. stock market declines accelerated and the dollar rose against the euro after his comments.
Safe haven assets such as gold and short term U.S. treasuries rose as investors switched from riskier stocks.
"It looks like everything that's economically sensitive is getting hit pretty good," said Scott Vergin, portfolio manager at Thrivent Financial in Minneapolis, Minnesota.
"The thing is, how much has the credit crunch already impacted the real economy?" added Vergin. "That's what everyone's really worried about." Continued...
Banking on the short term
