Chaos hits markets as confidence crisis grows

Financial Fallout: Mixed global economic indicators unnerve investors and spectre of new crash looms.

A man looks at an electronic board at RTS stock exchange in Moscow yesterday as global markets swang wildly.
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Global markets swung wildly yesterday amid the worst crisis of confidence to hit investors since the global recession in 2008.

Markets ended higher across Europe, with the Euro Stoxx 600 gaining 3.2 per cent. The UK's FTSE 100 rose as much as 3.3 per cent and dipped up to 1.3 per cent before closing up 3.1 per cent. Germany's DAX index took a similarly jumpy ride before closing up 3.3 per cent.

The Standard & Poor's 500, a broad measure of US stocks, rose 2.7 per cent in early trading yesterday. New US jobless data showed the number of people claiming unemployment benefits dropped to a four-month low, beating economists' estimates.

Volatility has been the watchword in global markets recently.

US stocks rebounded sharply on Tuesday only to fall by almost as much on Wednesday and rise early yesterday. Economists say the swings underscore growing uncertainty in the face of mixed economic indicators from Europe, the US and Asia.

"Investors are nervous and there is a lot of volatility," said Dr Giyas Gokkent, the chief economist at National Bank of Abu Dhabi. "In the case of the US markets, they have pretty much doubled since 2009, and with that in mind, is a correction healthy? Probably so."

The market sell-off that has sent the US's Dow Jones Industrial Average down by more than 15 per cent since July 21 comes as worry intensifies over the health of economies in the US, Europe and Asia.

In the US, data last week showing companies were hiring more people was balanced against slower consumer spending figures and weak manufacturing activity.

The country's credit rating was also downgraded on Friday by S&P, which spooked markets. Earlier this week, the US Federal Reserve pledged to keep interest rates near zero until at least 2013, an announcement cheered by investors.

Europe, meanwhile, is contending with a sovereign debt crisis policymakers are straining to resolve.

After bailing out Greece and extending aid to other troubled countries on the continent's periphery, European leaders are weighing the spread of the crisis to Spain and Italy.

The European Central Bank recently restarted a bond-buying programme to prop up Spanish and Italian debt prices even as fears rose that France's top "AAA" credit rating might be under threat.

Nicolas Sarkozy, the French president, and Angela Merkel, the German chancellor, are to meet next week to discuss their next steps to contain the growing crisis. The leaders said yesterday they would talk about Europe's economic governance as pressure increases for them to pump more money into a euro-zone bailout fund.