Page last updated at 22:23 GMT, Thursday, 16 October 2008 23:23 UK

US shares up in volatile trading

Wall Street trader 15 October
Investors fear that efforts to halt the banking crisis won't prevent recession

Wall Street shares ended higher after sharp falls and gains in a day of tense trading, with the Dow closing up 4.6%.

Yahoo shares jumped on talk of a deal with Microsoft and pushed the Nasdaq index up 5.4%.

Investors were digesting September's industrial production figures - which made their biggest drop since 1974 - while inflation was unchanged.

In Europe, London's FTSE 100 closed down 5.7%, France's Cac 40 fell 5.9% and Germany's Dax lost 4.9%.

The Dow Jones Industrial Average closed at 8,979 after a late rally, while the technology-based Nasdaq index ended the day at 1,717.

Wall Street is expected to remain extremely volatile, as it has been since last month, because of investors' great anxiety about the economy.

"We're going to continue to see volatility. You're not going to see 50-point ranges, you're going to see two-three-four hundred point ranges," said Woody Dorsey, of the financial forecasters Market Semiotics.

Production falls

Tom Higgins of Payden & Rygel investment managers said some investors were being forced to use the stock market because other markets remained largely paralysed.

"If you have to liquefy your assets and you need access to cash immediately then the market you're going to do it in is the equity market and that's what I think is pushing around the indexes," he said.

On Wednesday, the Dow recorded its biggest one-day percentage fall since October 1987, closing almost 8% down.

DOW JONES INDUSTRIAL AVERAGE: 16 October 2008
Dow Jones intraday chart
*All Times GMT

Other developments included:

  • US industrial production fell 2.8% in September, figures showed
  • US consumer price inflation was unchanged in September from August
  • The Philadelphia Federal Reserve's report showed manufacturing conditions had weakened in October
  • Oil prices fell after weekly US fuel reserves figures rose more than expected; US light, sweet crude for November delivery hit a 14-month low of $69.93 a barrel
  • Germany lowered its forecast for economic growth next year from 1.2% to 0.2%

FTSE 100 INDEX: 16 October 2008
FTSE 100 intraday chart
*All Times GMT

The US inflation figures were better than had been expected, despite the low interest rate policy being pursued by the central bank, the Federal Reserve.

Hurricanes in the Gulf of Mexico and a strike at Boeing were partly blamed for the big fall in industrial production, which hit sentiment.

"It is one for the record books, or just about," said Chris Rupkey at Bank of Tokyo-Mitsubishi UFJ in New York.

"It is a sign that the economy is falling away quickly, and it is certainly consistent with the recession that we seem to be in."

Protracted slowdown

Shares rose earlier in the week on optimism after more details emerged about the bank rescue packages being proposed by the UK and the European Union.

What we're witnessing is the limits of what these banking bail-outs can achieve in the face of what increasingly looks like the onset of a global economic recession
Robert Peston, BBC business editor

But worries about how a protracted economic slowdown would affect the rest of the economy are now coming to the fore.

"Sentiment is deteriorating very fast," said Jacky Choi, a fund manager at Value Partners.

"People are losing what little confidence they have on a day-by-day basis."

Insufficient

There were also signs that the cash injections from central banks had not yet restored confidence in the banking sector.

BBC business editor Robert Peston said that banks were still not lending to each other at anything like a normal rate of interest relative to official rates.

Gordon Brown says people need to know financial institutions are acting responsibly

This was worrying as it meant banks were unlikely to lend money at better rates to consumers and businesses, he added.

Many groups are trying to find solutions. Eight mutual European banks led by Credit Agricole have struck a deal to resume lending to each other, according to AFP news agency.

In another attempt to help banks, the Bank of England has changed the ways it is prepared to lend to them.

The idea will be to allow banks to borrow overnight without any stigma as well as offering loans for up to 30 days with assets such as mortgages acceptable as collateral.


MARKET DATA - 11:36 UK

FTSE 100
5429.64up
23.70 0.44%
Dax
5733.05up
19.54 0.34%
Cac 40
3784.02up
14.48 0.38%
Dow Jones
10403.79up
78.53 0.76%
Nasdaq
2273.57up
35.31 1.58%
BBC Global 30
5707.15up
20.65 0.36%
Data delayed by at least 15 minutes


SEE ALSO
Special report: Financial crisis
16 Oct 08 |  Business


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