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Shares back up in volatile trade
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BBC:
European shares have recovered heavy losses made in a volatile morning's trading, as US markets opened higher.
The leading Dow Jones index opened up 1.2% at 10,939.12.
Some indexes, like London's FTSE 100, that had fallen up to 5.5%, were positive by the time Wall Street opened - although trading remained nervy.
Traders are on edge about the levels of debt facing the US and some eurozone countries, and the impact this could have on their already weak economies.
Those worries helped spark this week's share market rout after the US government's credit rating was downgraded over the weekend from the top AAA grade.
Traders are now looking for help from the US central bank, the Federal Reserve, whose open markets committee (FOMC) has begun a policy meeting and is due to make a statement later.
"People are hoping the Fed is working on a plan that will come out later today, and that, along with yesterday's sell-off, is why we're rising now," said Jeff Duncan, president of Duncan Financial Management.
Sarah Wasserman of Schaeffer's Investment Research, was also waiting for some move by the monetary authorities: "While the Fed's been noncommittal about additional monetary easing, Friday's downgrade has spurred hopes that additional assistance from the government could, perhaps, be on the horizon."
Some observers say the Fed has few weapons left.
Interest rates - at near zero since 2008 - have nowhere further to go and the bank has just completed its second round of quantitative easing, another liquidity-boosting move but one whose success is difficult to measure.
But others warned that no action by the Fed could trigger further losses: "If the Fed does nothing, it could prove to be a disappointment at this point," said one analyst at JP Morgan.
Meanwhile, China has appealed for global action to stabilise the markets.
Speaking after a regular meeting by the Chinese cabinet, the country's Premier, Wen Jiabao, alluded to debt problems in the US and Europe and called on "relevant" countries to implement responsible monetary policies and rein in deficits.
According to state radio, he called for the better communication and co-ordination policies as the current uncertainty was "marring a world economic recovery".
However, there was better news on the bond markets where the yield on both Spanish and Italian government bonds fell for the second day.
The European Central Bank (ECB) has begun intervening in the markets to try to keep the cost of borrowing down for the two countries, which are struggling to avoid a Greece-style bail-out by the authorities.
Major crisis
The head of the European Central Bank, Jean-Claude Trichet, defended his institution's decision: "It is the worst crisis since World War II and it could have been the worst crisis since World War I if leaders hadn't taken the important decisions," he said in an interview with the French radio station, Europe 1.
But Mr Trichet indicated that the main responsibility for fighting the debt crisis lay with eurozone governments and not the central bank.
The eurozone is planning to beef up the powers of the European Financial Stability Facility (EFSF) so that it can start to support government bonds by buying them on the open market.
Individual governments need to ratify the proposals and delays in doing so have only added to the current uncertainty and Mr Trichet called on them to "speed up" that process.
Meanwhile Spain's finance minister, Elena Salgado, has again insisted her country does not need a bailout, saying that Spain's total debt was 20 percentage points below the EU average at around 64% of Spanish GDP.
She said Europe would "no doubt" hold a meeting on the financial crisis in early September - although authorities were ready to hold one earlier, if it proved necessary.
On Tuesday, Asian markets suffered further steep falls, although they had recovered around half of their overnight losses by the close.
The Nikkei finished down 1.7%, South Korea's Kospi down 3.64%, and Hong Kong's Hang Seng down 2.8%.
Lacking options
Alan Brown, chief investment officer of Schroders, told the BBC that investors could see no way out of the current troubles.
"The underlying story is all of the weak economic data that we've seen across the eurozone and the UK and the US over the past several weeks," he said.
"I think that investors are recognising that the authorities have very few policy levers left. They have exhausted fiscal options, interest rates in most places are at rock bottom. That is why markets are very nervous."
But Mr Brown said the ECB's moves to support Spain and Italy were "potentially very helpful".
"If they are able to keep a lid on yields in Italy and Spain then they will succeed in stopping the markets creating their own reality whereby they drive yields on Italian and Spanish debt to levels which would cause solvency problems in those countries."
"What's rocking the market is a growth scare," said Kathleen Gaffney of Loomis Sayles.
She said investors were concerned about "how Europe and the US are going to work their way out of a high debt burden" if the global economy slows.
Crude oil prices continued to slide amid concerns that if the economy did slow down, demand would wane in coming months.
Brent crude fell to a six-month low below $100 a barrel before rebounding to $105.
Gold futures hit another new record of $1,782.50 an ounce as investors looked for assets that are considered to be less risky. The Swiss franc also gained.
source:
http://www.bbc.co.uk/news/business-14456518
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