Stocks droop as concerns linger

Posted by admin on 5 October, 2008 under Business news | Be the First to Comment

US stocks erased gains to end lower as investors took profits following the approval of a $700bn (£394bn) plan to rescue the US financial system.

Investors had been anxious for the bill to pass but said uncertainty remained about how the economy would recover from the credit crisis.

The plan involves using taxpayers’ money to buy banks’ bad debts.

The Dow Jones Industrial Average ended down 157 points at 10,325, after earlier surging as much as 300 points.

The vote by the US House of Representatives was the second in a week, following its shock rejection of an earlier version on Monday.

World financial markets had been volatile while the bill was debated and traders on the floor of the New York stock exchange cheered when the bail-out plan was passed.

Concerns remain

The package is aimed at buying up the bad debts of failing institutions on Wall Street – a move US Treasury Secretary Henry Paulson hopes will get credit markets moving again and encourage banks to lend to each other.

“The passage of the package should provide some near-term stability in financial markets, but a good deal of uncertainty remains” Michael Moran, Daiwa Securities

However, concerns over the health of the US economy remain.

US employers cut 159,000 jobs last month, the steepest decline in more than five years and the latest evidence that the economy may be entering a recession.

“I think there are still a lot of questions as to whether or not this bill is going to save the economy anyway,” said Tom Bentz, an analyst at BNP Paribas in New York.

Market disruptions

Federal Reserve Chairman Ben Bernanke said the US central bank would do whatever it can to combat the credit crisis and help the economy.

“We will continue to use all of the powers at our disposal to mitigate credit market disruptions and to foster a strong, vibrant economy,” Mr Bernanke said after the rescue bill passed.

Hopes that the rescue bill would be passed had earlier cheered European markets.

The FTSE 100, the UK’s top share index, ended up 2.3%, while France’s Cac 40 climbed 2.96% and Germany’s Dax rose 2.4%.

“The passage of the package should provide some near-term stability in financial markets, but a good deal of uncertainty remains about the longer-term impact, ” said Michael Moran, chief economist at Daiwa Securities.

News that US bank Wells Fargo will buy rival Wachovia had also bolstered investors’ confidence.

News reported by The BBC