A passer-by walks past an electronic stock board in downtown Tokyo Friday, Oct. 10, 2008. Japanese shares nose-dived more than 10 percent in morning trade Friday as panicked investors dumped stocks following massive overnight losses on Wall Street and on growing fears over a global recession. The benchmark Nikkei 225 index lost 974.12 points, or 10.64 percent, to close the morning session at 8,183.37. (AP Photo/Itsuo Inouye)
LONDON - European and Asian stock markets mostly fell back Wednesday after a two-day rally amid profit-taking and concerns that the global efforts to restore confidence in the battered financial system will not be enough to stave off a deep recession.
The FTSE 100 index of leading British shares was down 130.91 points, or 3.0 percent, at 4,263.30. Germany's DAX was 127.03 points, or 2.4 percent, lower at 5,072.16, while France's CAC-40 was 85.29 points, or 2.4 percent, down at 3,543.23.
The losses in Europe's follow similar declines in the U.S. and most Asian markets, except Japan.
"After a bumper start to the week, the inevitable reversal for equity markets does seem to be underway but there's certainly no real belief so far that this will mark the end of the rally at least in the short term," said Matt Buckland, a dealer at CMC Markets.
"Instead, we're seeing some profit taking and a reassessment of positions after the upswing, although there is an element of concern as to the longer term economic outlook creeping in," he added.
The upswing seen in the early part of the week was due to the unveiling of a series of bank rescue packages from governments around the world to restore confidence.
On Tuesday, the U.S. government followed Europe's lead and announced it is to pump some US250 billion into shares of its leading banks, including JP Morgan Chase & Co., Bank of America Corp., Goldman Sachs Inc. and Citigroup Inc.
The long-term key is whether the flurry of activity can actually break the logjam in credit markets. Despite the coordinated interest rate reductions announced last Wednesday, and massive liquidity boosts, the rates at which banks lend remain high, despite some easing in rates and spreads this week. That could in turn make it harder for businesses and consumers to get the credit they need and hurt the economy.
Though the rescue packages have helped confidence in markets recover somewhat, evidenced by Monday's record rise on Wall Street and the modest easing in interbank lending rates, they will do nothing to prevent a serious economic slowdown.
"The plans will not be able to avoid a serious fallout of the financial crisis on the real economy, as the deleveraging currently undergoing in the financial sector and the confidence effect of recent events on both businesses and consumers hit Main Street," said Luigi Speranza, an analyst at BNP Paribas.
The effect on the real economy was highlighted Wednesday in Britain with the news that unemployment rose by another 164,000 between June and August, to 1.79 million. The biggest rise since 1991 took the official unemployment rate up to 5.7 percent from 5.2 percent in the previous quarter.
"With the UK heading into recession, we expect this measure to rise by a total of 1.5 million to around 3 million or 9 percent by the end of 2010," said Vicky Redwood, an economist at Capital Economics.
Concerns about the global economic outlook are clear also in the price of oil, which has fallen another $1.07 to $77.56, near the year lows recorded last Friday when stock markets around the world collapsed.
Resource issues have also taken a hit on worries about slowing demand. Shares in Posco, the world's fourth-largest steelmaker, lost almost 8.7 percent in South Korea, while BHP Billiton Ltd, Australia's largest oil and gas producer, sank more than 4 percent.
A day after announcing billions in new spending to protect Australia's economy, Prime Minister Kevin Rudd accused Wall Street of "obscene failures" in corporate governance and blamed "extreme capitalism" for turmoil.
Earlier in Asia, Hong Kong's Hang Seng Index lost 834.58 points, or nearly 5 percent, to close at 15,998.30 after rising more than 13 percent the previous two days. Markets in Australia, South Korea, China, India and Singapore also sank.
Japan's Nikkei 225 index bucked the trend, however, ending up 1.1 percent at 9,547.47. The benchmark soared 14 percent in the previous session — its biggest single-day gain ever.
In Hong Kong, Chief Executive Donald Tsang said the meltdown was even worse than the 1997 Asian financial crisis and would take a far bigger toll on the global economy.
Major exporters such as Japanese automakers slumped due to concerns over the U.S. economy, a vital market for Asian goods. Honda Motor Co. shed 5.23 percent, and Toyota Motor Corp. lost 1.88 percent.