The Wall St. street sign is photographed in front of the American flag hanging on the New York Stock Exchange prior to a NYC Central Labor Council rally for worker protections, Thursday, Sept. 25, 2008 in New York. (AP Photo/Mary Altaffer)
NEW YORK - Financial markets around the world had a rocky start Monday after European governments took steps to limit the damage from the growing global financial crisis. U.S. stocks looked to have a steep drop at the opening, and the credit markets remained under strain.
Investors have come to the realization that the Bush administration's $700 billion rescue plan won't work quickly enough to unfreeze the credit markets, and that many banks are still having difficulties gaining access to cash.
Over the weekend, governments across Europes rushed to prop up failing banks. The German government and financial industry agreed on a $68 billion bailout for commercial-property lender Hypo Real Estate Holding AG, while France's BNP Paribas agreed to acquire a 75 percent stake in Fortis's Belgium bank after a government rescue failed.
The governments of Germany, Ireland and Greece also said they would guarantee bank deposits.
Global markets sold off. In Asia, the Nikkei 225 closed 4.25 percent lower. Europe's bourses also declined, with the FTSE-100 down 3.96 percent, Germany's DAX down 5.83 percent, and France's CAC-40 down 6.22 percent.
And, major U.S. indexes were ready to follow suit. Dow Jones industrial average futures fell 176, or 1.70 percent, to 10,188. Standard & Poor's 500 index futures fell 32.30, or 2.91 percent, to 1,076.00, while Nasdaq 100 futures fell 40.50, or 2.74 percent, to 1,437.00.
The anxiety was again obvious in the credit markets. The yield on the three-month Treasury bill slipped to 0.48 percent from 0.50 percent late Friday. Demand for bills remains high because of their safety; investors are willing to take extremely low returns just to have their money in a secure place.
Investors also moved into longer-term Treasury bonds. The yield on the 10-year note fell to 3.51 percent from 3.60 percent late Friday.
Banks' hesitation to lend to one another and to many businesses and individuals is the result of the bad mortgage debt that the financial rescue is supposed to sweep up. But it's still unclear how quickly financial institutions will be able to hand that debt to the U.S. government and convince the markets they are healthy again.
There has been some hope that perhaps the Federal Reserve, in concert with other central banks, might cut interest rates to help stimulate the economy. With oil prices well off their midsummer highs and indicators pointing to a slower economy, the Fed's worries about inflation are less than they had been, making it easier to justify a rate cut.
Investors might get some indication about a potential rate cut with several policymakers slated to speak this week. Dallas Fed President Richard Fisher and Chicago Fed President Charles Evans will speak on the U.S. economy on Monday. Federal Reserve Chairman Ben Bernanke is due to speak on Tuesday.