Dow below 11,000 despite Obama speech

Global stocks have slumped and remained deep in the red in the UK and US, with the FTSE 100 losing almost 200 points to close within a whisker of the 5,000 mark.

Stocks tumbled in the first session since rating agency Standard & Poor’s stripped the US of its AAA sovereign rating, leaving the FTSE 100 3.4 per cent lower at 5,068.95.

An attempt by US president Barack Obama to calm markets with a speech only worsened the decline, pushing the Dow back below 11,000 as he spoke.

His speech blamed the downgrade on political gridlock in Washington and agreed to recommend ways to reduce federal deficits.

"Markets will rise and fall, but this is the United States of America. No matter what some agency may say, we have always been and always will be a triple-A country," Obama said.

US stocks have seen their biggest one day drop since December 1, 2008 during the worst of the financial crisis. Bank shares have been severely punished, raising fears of a new financial crisis.

The Dow Jones industrial average has closed down 633.78 points or 5.5 per cent at 10,816.51.

The Standard & Poor's 500 Index has ended down 79.27 points or 6.6 per cent at 1,120.11.

The Nasdaq Composite Index finished down 174.72 points or 6.9 per cent at 2,357.69.

On the FTSE 100 just one stock closed higher – gold producer Randgold Resources, which finished 7.4 per cent up after the gold price soared to new record highs, as investors bought into the safe haven in their droves.

The FTSE has now lost about 14 per cent in the past week.

But mining and engineering stocks, along with commodities from copper to grain, were sold over fears that the global economic recovery had been derailed.

“Resource and industrial stocks have remained under pressure with pump maker Weir Group the biggest faller after being downgraded from "overweight" to "equal-weight" by Morgan Stanley. 


“Mining stocks have also fallen back as risk aversion has remained the predominant sentiment as growth concerns continue to weigh on the global economy,” said CMC Markets analyst Michael Hewson.

Weir ended 15.1 per cent down while engineer GKN fell 13.6 per cent and Kazakhmys 12.9 per cent.

Energy and oilfield services firms such as Vedanta, Petrofac and Essar Energy also fell at least seven per cent.

RBS analyst Ian Richards said the US downgrade “represents a hit to already shattered confidence rather than an immediate and direct change in fundamentals.”

But he said the news “could hardly have been timed worse given the fragility of financial markets.”