Sting in the tail on US bailout day

October 06 06:05:01 AM, Yahoo News

A pedestrian passes before a share prices board in Tokyo. US stocks rallied, taking European markets sharply higher Friday as hopes the US Congress will pass a multi-billion-dollar bank rescue package offset a much weaker-than-expected US employment report.(AFP/Yoshikazu Tsuno)

AFP - US stock markets fell sharply Friday after the Congress passed a huge financial rescue plan, as optimism built up earlier in the day evaporated in late trading.

Markets in Europe had finished sharply higher in anticipation of the 700-billion-dollar US bailout bill, but when an agreement was finally announced shares sunk on Wall Street, mirroring losses in Asia.

The declines appeared to reflect the realization that the plan would not be a panacea for the US's broad economic and banking woes.

Amid growing concern about a forthcoming recession, there was also grim macroeconomic news in the US on Friday where a government report showed the US economy shed 159,000 jobs in September.

The US report, seen as one of the best indicators of economic momentum, revealed a sharp rise in the number of cuts after 73,000 job losses in August.

"There is little doubt that the nation is in a recession which will only deepen in coming months as the financial crisis casts a pall on economic activity," said Sophia Koropeckyj at Economy.com.

The US unemployment rate, however, remained unchanged at 6.1 percent.

In France, leaders scrambled to reassure consumers, voters and investors after the official statistics agency warned that the eurozone's second largest economy had slipped into recession.

At the close on Wall Street, the Dow Jones Industrial Average fell 1.50 percent to end at 10,325.38, capping a horrid week that saw blue chips slide more than seven percent.

The tech-heavy Nasdaq slumped 1.48 percent to 1,947.39 and the broad-market Standard & Poor's 500 index shed 1.35 percent to 1,099.23.

In Europe, the London FTSE 100 index of leading shares jumped 2.26 percent to finish at 4,980.25 and in Paris, the CAC 40 added 2.96 percent at 4,080.75.

In Frankfurt, the DAX was up 2.41 percent at 5,797.03.

Even before the bailout was passed by the US House of Representatives, then signed by President George W. Bush, some analysts had raised doubts about its effectiveness.

"Even if the House of Representatives pass the bill -- and this time it would be truly stunning if it were rejected -- it is not actually clear whether this will actually make much difference," said Capital Spreads director Simon Denham.

The House rejected the initial bailout plan on Monday, causing the DJIA to record its biggest single-day points loss on record.

News that US bank Wells Fargo was buying rival Wachovia had helped to lift Wall Street earlier in the day as investors took The View such a deal proved business could still be done despite the credit crunch.

The proposed acquisition drew a sharp response from Citigroup, which claimed the deal was a breach of its exclusive takeover rights for Wachovia after it concluded a deal on Monday.

Wachovia and Wells Fargo said that they had "signed a definitive agreement for the merger of the two companies" without government assistance.

American International Group (AIG) had also cheered the markets by saying it was readying a plan to repay a US government bailout by selling assets.

In other global markets, Brazil's Bovespa fell 3.53 percent and Canada's S&P/TSX shed 0.89 percent.

Earlier, Asian markets fared badly as investors contended with fears that the region may in due course see its share of troubles in the fallout from the crisis.

Tokyo closed down two percent, Hong Kong dived 2.9 percent and Sydney shed 1.4 percent.

Source

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