the ripple effect of a dying US economy is just starting.

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Black Monday as biggest FTSE crash since 9/11 wipes off nearly £60bn in shares
Last updated at 18:37pm on 21.01.08

http://www.thisislondon.co.uk/news/a...res/article.do

The stock market was in meltdown today as nearly £60billion was wiped off London shares as fears of a US recession sparked a global sell-off.

The bloodbath saw the Footsie plummet by 5.5 per cent, losing 323.5 points to close at 5578.2 - its biggest one-day points drop since the September 11 terrorist attacks in 2001.

The Footsie has now fallen by around 10 per cent in the last 10 days, by around 15 per cent over the last month and is well on the way to being off 20 per cent since its most recent high of 6754 in July - before the world's banking system was sent spiralling.

It is also the worst start to the year for the stock market since records began in 1936.

"I smell the acrid stench of fear and uncertainty," said markets commentator David Buik of BGC Partners.

Shares across Europe also dived and Asian stock markets suffered heavy overnight losses as fears over the health of the world's biggest economy swept through markets across the globe.

The falls followed Friday's falls for the Dow Jones Industrial Average on Wall Street, when investors were left unimpressed by the US Government's tax-relief plans to spur on the economy.

Rumours that Bank of China may become the latest banking giant to reveal a financial hit from the collapse of America's sub-prime mortgage market also tested investor nerves

The fall in the Footsie came after figures revealed a record government borrowing deficit for December of £7.8billion.

Howard Archer of forecasters Global Insight said: "The Chancellor's target of cutting public sector borrowing next fiscal year now looks like wishful thinking."

Big fallers included Wolseley, the building supplies company, which reported a 40 per cent drop in profits.

The grim economic outlook comes as Gordon Brown has announced a rescue plan for the ailing Northern Rock.

The Treasury aims to sell millions of Government-backed bonds which will effectively prop up the bank, a move which is likely to make it more attractive to private investors.

The news sent shares in the stricken bank soaring this morning.

Mark Outten, senior trader at GFT Global Markets, said: "There is a general nervousness in the markets at the moment over an economic slowdown."

Last week, the index dipped below the 6,000 barrier for the first time since the start of the credit crunch in August.

HSBC and Royal Bank of Scotland - both with heavy exposure to the US economy - each saw significant losses.

Plumbing and heating giant Wolseley were among the early Footsie fallers, losing almost 9 per cent after the company warned of a deteriorating US housing market and falling profits.

But the firm recovered some lost ground as the session wore on.

Insurer Standard Life, meanwhile, was on the back foot amid reports that Trevor Matthews, its head of UK life and pensions, was being lined up as the new chief executive of Friends Provident, currently a bid target for a US private equity firm.

While it is thought that Mr Matthews turned down the job last week, shares in Standard Life still slipped.

Markets also fell in Europe, with the CAC-40 in Paris down more than 3 per cent and the Dax in Frankfurt down almost 3 per cent as they digested the news from across the Atlantic.

The US stock market was closed today for the Martin Luther King one-day holiday, but traders suggested America would be playing catch up when it reopens Tuesday, which could lead to further volatility.

On Friday, President George Bush unveiled plans for a special package of measures worth billions of dollars to help avoid a downturn in the US economy.

He said the growth package would have to be big enough to make a difference to the "large and dynamic" US economy.

But US shares turned sharply lower following the announcement, with some market participants saying that Mr Bush's plan did not go far enough.

Banking and mining stocks were worst hit as concerns over a US economic slowdown gathered pace.

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Stocks plunge despite emergency Fed rate cut
Tue Jan 22, 2008 10:37am EST
By Pedro Nicolaci da Costa

http://www.reuters.com/article/hotSt...80122?rpc=401&

NEW YORK (Reuters) Wall Street stocks plunged at the open, extending a global rout as panic reached new heights despite the Federal Reserve's biggest emergency interest rate cut in more than two decades.

The U.S. central bank sought to placate market worries and prevent a recession by slashing interest rates by 0.75 percentage point -- the first cut between regularly scheduled meetings since September 2001.

But investors appeared to think the biggest single Fed shift in rates since 1994 was not enough to prevent a worsening U.S. economic outlook from forcing a steep retrenchment in corporate profits.

The Dow Jones industrial average was down more 430 points, or 3.5 percent, while the S&P 500 fell 47 points, or 3.6 percent. Bonds jumped sharply, with two-year notes falling to 2.08 percent, their lowest in nearly four years.

These moves followed mounting losses overseas. Hong Kong's Hang Seng index lost $321 billion of its value in just the past two days. Developing countries' stock markets were also experiencing dramatic declines.

"There's so much panic out there right now, I'm not sure it (the Fed rate cut) will help," Kim Rupert, managing director of global fixed-income at Action Economics in San Francisco.

Traders expect the Fed to cut rates even further at its next scheduled policy meeting next week. Tuesday's cut brought the benchmark federal funds rate down to 3.50 percent.

These expectations led to a big drop in the dollar against the euro, as the prospect of much lower rates in the United States made European assets look even more attractive.