Shares hit amid fears US economy sliding back towards recession

2nd June 2011

The FTSE 100 index of blue chip shares lost 65 points, with other major European indices also ‘bathed in red'. This followed losses across Asia, as investors across the globe reacted to the worst day's trading in New York in almost a year.

Another Guardian report adds that weaker than expected data from Europe and China is adding to the downbeat mood, the Dow Jones industrial average lost 280 points – 2.2% – in New York. It was the biggest points drop in almost a year, says the report. In Japan, the Nikkei tumbled 1.7% to 9,555.04 with exporters leading the losers.

Market confidence has been hit by grim economic news this week. This includes a gloomy report from US factories and worse-than-expected US jobs data on Wednesday, with the private sector adding just 38,000 jobs in May against market expectations of 175,000.

The deteriorating outlook for the US economy is driving European equity markets, reports the Financial Times (paywall) with the FTSE Eurofirst 300 down 0.8%, led by basic materials and oil and gas stocks. Adding to the gloom was a downgrading of Greece's sovereign debt deep into "junk" status by Moody's.

Paul Fisher, who implemented the Bank's £200bn quantitative easing programme, told the Daily Mail that a further injection of QE was an option. "I would consider it and I've said I still hold that possibility open," said Fisher.

Bill9651 comments on the Guardian report: "…Unfortunately we are in the midst of an economic tsunami. The weight of past borrowing and spending has caught up with us and a correction is inevitable. Demand is falling in many countries because consumers and governments are "spent up" and having to cut back.

"We are now in unknown economic territory, where major governments are approaching their borrowing limits, as are very many consumers. Hard times were bound to follow but we have yet to discover just how bad these will be."

Mindful Money economist blogger Shaun Richards says of the slowdown in the US economy: "This is a concern on several counts. Firstly she remains the world's largest economy, and although she is not a massive international trader in relative terms the size of her economy means that she is still very important to the rest of the world. The second is that this slowdown is occurring when she is the beneficiary of two types of economic stimulus…"

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