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Fears of recession spark further turmoil in markets

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  • Greg Cannon
    http://news.independent.co.uk/business/news/article2318740.ece Fears of recession spark further turmoil in markets By David Usborne in New York Published: 02
    Message 1 of 1 , Mar 1 6:02 PM
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      http://news.independent.co.uk/business/news/article2318740.ece

      Fears of recession spark further turmoil in markets
      By David Usborne in New York
      Published: 02 March 2007

      Fresh anxiety erupted about the health of the world's
      major economies yesterday after investors in stock
      markets across Asia, Europe and the United States once
      again staged significant retreats two days after
      Tuesday's unexpected global equity sell-off.

      In New York, the Dow Jones Industrial Average plunged
      more than 200 points in the first minutes of trading,
      seeding fears of a repeat of Tuesday's massacre that
      saw a 416-point collapse on the index.

      With slowdowns emerging, notably in the housing market
      and car manufacturing in the United States, signs are
      building that it economy may be at a pivot point, with
      some observers worrying about decelerating expansion
      and possibly a recession looming.

      The fearful mood was exacerbated by comments from Alan
      Greenspan, the influential former chairman of the US
      Federal Reserve, about the possibility of the US
      entering recession before year's end. He told a
      conference in Tokyo yesterday: "By the end of the
      year, there is the possibility but not the probability
      of the US moving into recession." He has argued this
      week that corporate profit margins appear to be
      narrowing, indicating that a recent economic expansion
      has reached a "mature phase".

      Market watchers warned of several more bumpy days to
      come, pointing to the renewed erosions in stock
      markets globally yesterday. The Shanghai stock market
      slippedan additional 2.9 per cent. The London FTSE
      index closed down 55.5 points or 1.5 per cent. The Dow
      later recouped most of its early losses as some more
      encouraging economic data was released and closed down
      34.29 points. But fears remain that there may be worse
      to come. All the markets have fallen significantly
      during the course of the week.

      Senator Hillary Clinton, a candidate for the US
      presidency, last night called events of recent days a
      "real wake-up call" for the United States, saying it
      was "increasingly losing control" of its economic
      sovereignty because of the globalisation of economies
      and policy-making, including in China.

      "We are in a different environment," she said, noting
      the $2.2 trillion (£1.1trillion) foreign debt held by
      the US. "Obviously, the level of public debt that is
      held by central banks and foreign government is a
      problem and I don't want our government to ignore this
      wake-up call."

      A degree of calm was restored to the New York market
      after indicators were released showing
      better-than-expected manufacturing numbers for the US.
      The Institute for Supply Management's index of
      manufacturing activity registered 52.3 for January,
      stronger than the 50.0 reading analysts had expected.
      By convention, a recession is considered to be in the
      offing if that number falls below the 50-point mark.

      The US Commerce Department revealed that seasonally
      adjusted personal income in the US rose by 1.5 per
      cent in January, which was also a better result than
      had been anticipated.

      Investors have been spooked by this week's gyrations
      after enjoying 12 months of almost unbroken growth in
      stocks. No one was more shocked than the new Chinese
      investors who watched in dismay on Tuesday as the
      Shanghai index tumbled almost 9 per cent.

      US economists are contemplating a change in the
      balance of power between world markets, where New York
      can nowadays find itself hostage to foreign market
      performances.

      "It's kind of the tail wagging the dog," said Arthur
      Hogan, chief market analyst at Jefferies & Co in New
      York. "There's no stability in Asian markets, and no
      stability in European markets. We're trading the
      market as the rest of the globe is."

      After the "Shanghai Sneeze", as some called it,
      officials tried to soothe investors. There was a brief
      claw-back on Wednesday in New York after Mr
      Greenspan's successor at the Federal Reserve, Ben
      Bernanke, said in congressional testimony that
      "there's a reasonable possibility that we'll see some
      strengthening of the economy sometime during the
      middle of the year". He played down a report that
      showed that a 2006 fourth-quarter expansion of the US
      economy was slower than previously estimated.

      There was no saying how the week would end for world
      markets today. "The aftermath of Tuesday's major
      sell-off will linger for the next couple of days,"
      said Peter Cardillo, chief market economist at
      brokerage house Avalon Partners. He added, however,
      that "fear of recession is overblown".

      That Mr Greenspan is still able to move world markets
      even in retirement is certain to raise questions about
      whether he would do better to keep his counsel.
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