A SEA OF RED

 
Julian Harris
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WORLD MARKETS CONTINUE LURCH DOWNWARDS

INVESTORS fled stocks on both sides of the pond yesterday, as financial turmoil further engulfed markets.

In New York, the Dow Jones index closed down 5.55 per cent; the Nasdaq shed 6.9 per cent; and the S&P 500 lost 6.66 per cent.

By the close of trading last night every single stock in the S&P 500 had fallen into negative territory, for the first time since at least 1996.

The rout intensified after a speech by President Barack Obama, in which he tried to respond to the downgrading of US debt by credit rating agency S&P.

But US markets, trading for the first time since the downgrade, plummeted further while he spoke.

“No matter what some agency may say, we will always be an AAA country,” a defiant Obama said.

S&P also downgraded US government-supported lending giants Fannie Mae and Freddie Mac yesterday, due to the groups’ exposure to US debt.

And there were further signs of crisis as shares in the giant US bank Bank of America Merrill Lynch slid more than 20 per cent after news of a $10bn (£6.1bn) lawsuit.

Japan’s Nikkei opened 3.4 per cent down this morning.

In London the FTSE 100 lost 178 points or 3.4 per cent, marking the first time in the history of the blue-chip index that four straight days of triple-figure falls have been recorded.

Fears spread last night that the FTSE 100 could sink below the psychologically important 5,000 mark today. The index has not dropped below 5,000 since September 2009.

“It started off tense and then it just turned into panic again when the US opened,” said IG Index’s chief market strategist David Jones.

“It was a day of two halves, as later in the day it turned into a sea of red. It’s looking weak going into tomorrow – we shouldn’t discount further carnage in the days ahead,” Jones warned.

The CBOE Volatility Index (VIX), Wall Street’s “fear gauge”, soared by 50 per cent to 48 – the biggest jump since February 2007.

The Stoxx Europe 600 plummeted by 4.14 per cent, defying the European Central Bank’s efforts to restore calm by intervening in Italian and Spanish bond markets.

“In the bond markets, yields are massively down,” said Darren Ruane of Investec Wealth & Investment, “yet equities have ignored it.”

Safe havens such as precious metals continued to rally, with gold reaching a jaw-dropping $1,714 an ounce, a spike of more than four per cent.

With America’s equities tanking, the dollar dropped to a fresh record low against the Swiss franc, while the Swiss government held an extraordinary meeting over the strength of its currency.

Elsewhere in Europe, Greek stocks fell by over six per cent to a 14 year low as the crisis increased pressure on the troubled economy. Panicking regulators announced yesterday that short-selling will be banned on the Athens bourse for two months starting 9 August.