Fri Oct 17, 2008 5:26am IST
Government steps to shore up the banking system and unfreeze credit markets showed some signs of progress on Thursday, but grim news from major economies reinforced fears of recession and hammered global markets.
U.S. stocks bucked the global trend to end higher, clawing back some of Wednesday's steep losses despite news of layoffs in the auto-industry, a slowdown in industrial production and more warnings about the state of the economy.
Banks, which are at the heart of the crisis, were in the spotlight again.
Switzerland's top two banks, UBS AG and Credit Suisse Group AG (CS), took emergency measures to shore up their finances. In the United States Merrill Lynch and Citigroup reported heavy losses on bad loans and tough-to-sell mortgage securities.
In a sign of easing strains in the credit markets, rates that banks charge each other for loans mostly fell in response to radical moves by central banks to provide liquidity, bolster banks and loosen credit lines to institutions needing cash.
However, U.S. financial institutions borrowed record amounts of cash from the Federal Reserve in the latest week, according to Fed data released on Thursday, indicating that credit conditions in the United States remain constrained.
European Union leaders vowed to shield their industries from the global crisis and pushed plans for a global summit to overhaul the world financial system.
Asian, European and emerging market stock markets took another battering on Thursday. Japan's Nikkei fell 11 percent in its worst one-day drop since the stock market crash of October 1987, oil fell more than 6 percent to below $70 a barrel, and European shares lost 5 percent.
But in New York, the allure of heavily battered shares drew buyers one day after Wall Street's worst day in more than 20 years. The Dow ended up 4.68 percent and the S&P 500 rose 4.25 percent, buoyed by consumer companies that benefit from lower oil prices. The dollar also rose.
"I think this is bargain hunting and there are some bargains out there. Some of these stocks are at historic lows," said Warren Simpson, managing director at Stephens Capital Management in Little Rock, Arkansas.
Wednesday's sharp fall had dragged the Dow down about 40 percent from its record closing high of 14,164.53 hit on Oct. 9, 2007. Investors have pulled over $50 billion from stock funds so far in October, depressing prices in equities.
The rally in stocks drove up oil prices in electronic trade following the U.S. settlement, with crude futures rising more than $3 a barrel.
GRIM NEWS ON MAIN STREET
In the real economy, the news was mostly grim.
Investment bank Merrill Lynch, which is to be acquired by Bank of America, wrote down $5.7 billion of toxic assets and Citigroup reported a quarterly net loss of $2.8 billion.
U.S. home builder sentiment sank to an all-time low in October; motorcycle maker Harley-Davidson Inc cut its earnings forecast; General Motors said it would lay off 1,500 hourly workers; and big U.S. manufacturers braced for a slowdown.
U.S. industrial production marked its biggest drop in 34 years in September and factory activity in the U.S. mid-Atlantic region fell to an 18-year low in October.
"We should anticipate further declines in employment and softness in most components of demand for goods and services," said Gary Stern, head of the Minneapolis Federal Reserve Bank.
A Reuters poll of economists said the world's richest nations are in, or close to, recession.
Germany slashed its forecast for 2009 economic growth to 0.2 percent from 1.2 percent.
In Japan, a Reuters poll showed manufacturing business sentiment hit a six-year low this month.
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