World financial crisis

Wall Street hits 12-year low, world markets follow

Article published on the 2009-02-24 Latest update 2009-02-24 14:43 TU

The devil's work? - a Frankfurt stock-trader joins in the carnival observed in Germany on Tuesday
(Photo: Reuters)

Asian and European stock markets tumbled Tuesday, following a sell-off on Wall Street which took values there to a 12-year low. As the world's two biggest economies sink deeper into crisis, US President Barack Obama is to meet Japanese Prime Minister Taro Aso on Tuesday. Obama will also address the economic issues in his first speech to Congress.

Tokyo slid to a nearly 26-year low after the Wall Street rout and even China, which rose a third over the past month amid hopes that it would be relatively untouched by the crisis, saw shares plunge 4.56 per cent.

In its latest quarterly report, China's central bank warns that the economy could slow down further and that the risk of deflation is high.

Europe's main stock markets fell on opening, with Paris's Cac-40 down 1.01 per cent.

A report showed record low business confidence in Europe's largest economy, Germany, and a rise in Polish unemployment. But there has been a 1.8 per cent rebound for French consumer spending after December's 0.9 per cent fall.

British mining giant Lonmin, the world's biggest platinum producer, has announced that it will cut up to 5,500 jobs in South Africa.

The stock market falls follow a cool reception for a US bank rescue plan, which left uncertainty as to whether the govenrment will nationalise failed banks.

"The huge amount of disappointment we saw on the market is mainly regarding the lack of detail," says Juergen Michels, a senior economist at Citibank.

A joint statement on Monday from the US Treasury, Federal Reserve and banking regulators said the plan could lead to bigger government stakes but was based on a "strong presumption" that banks "remain in private hands".

"We are facing a really severe recession in the US and these plans are likely to avoid the worst case, which could mean a deep deflation in the US," Michels told RFI. He added, "but it is not likely to lead to a substantial and very sharp recovery in the US."

Obama is set to address Congress on the economy later Tuesday.

He told a "Fiscal Responsibility Summit" at the White House on Monday that he plans to halve the US's huge budget deficit by 2013, despite the public spending involved in his current economic rescue package.

"All this government action is trying to stabilise the economy now, and it seems that the government is one of the few risk takers you have at the moment [...] over the longer term this brings up a huge amount of questioning regarding the sustainability of government funding," Michels told RFI.

"But for the time being these measures are, it seems like, the only way out, to stablisise the situation," he added, speaking from London.