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Last Updated: Wednesday, 12 March 2008, 21:58 GMT
Wall Street flags as hopes fade
Traders are considering the cash injection from central banks
Wall Street shares have fallen, as optimism about central bank measures to ease the credit crunch faded.

Investors were also concerned by the rise in oil prices, which reached another record above $110 a barrel.

Stock markets worldwide had earlier rallied on news of co-ordinated action by central banks to inject cash into nervous credit markets.

The widely watched Dow Jones industrial average ended down 0.38%, a day after its biggest rally in five years.

European shares had closed higher, with London's FTSE 100 up 1.5% and Germany's Dax 1.2%.

One bold move by the Fed doesn't solve all the problems and all the issues
Georges Yared, Yared Investment Research

France's Cac 40 gained 1.5%.

Earlier on Wednesday, Japan's Nikkei rose 1.6% and Hong Kong's Hang Seng closed up 1.9%.

Tight times

The cash injection from central banks is designed to ease the global credit freeze, which threatens economic growth.

Banks have been reluctant to lend to each other and consumers after suffering billions of dollars of losses on investments linked to the weakening US housing market.

The central banks, which include the Bank of England and the US Federal Reserve, will pump more than $200bn (98bn) into the banking system in an attempt to stimulate lending.

But investors were hesitant to pour money back into stocks before real evidence that the banks' initiative would help the wider economy.

"One bold move by the Fed doesn't solve all the problems and all the issues," said Georges Yared, chief investment officer at Yared Investment Research.

"People are trying to assess how the Fed's move will begin to benefit corporate earnings and move the banks along to start loaning money."

The rally also flagged on concerns that sky-high oil prices, which have risen above $110 a barrel, could hurt corporate profits.

Not enough?

Analysts questioned whether the cash injection would help solve the problems that are now gripping financial markets and threatening to slow growth in some of the world's biggest economies.

"Yesterday's move was like a shot in the arm for the market, but it hasn't gotten at the real root of the illness," said Norihito Fujito, a strategist at Mitsubishi UFJ Securities.

The promise of extra cash on Tuesday was aimed at making it easier for businesses and consumers to borrow money by giving banks greater access to cheaper funds.

Edmund Shing, a strategist at BNP Paribas said: "We have to see the real proof of the pudding in the eating".

Mr Shing said that if interbank lending rates - the rate at which they lend to each other - did not fall then "the central banks will have failed" and it was unlikely that credit conditions would improve.

How US economic troubles have rippled around the world


FTSE 100
23.70 0.44%
19.54 0.34%
Cac 40
14.48 0.38%
Dow Jones
78.53 0.76%
35.31 1.58%
S&P 500
11.22 1.02%
BBC Global 30
20.65 0.36%
Data delayed by at least 15 minutes

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