MercoPress. South Atlantic News Agency

Global markets react fearful of big banks performance

Global stocks see further falls

Wall Street shares cast a shadow over global stock markets again after warnings that the problems in credit markets will hit big banks' profits. The Dow Jones suffered its biggest fall since 9 August on Tuesday, closing down 280.3 points or 2.1% at 13,041.9.

Many of the biggest fallers were in the financial sector after Merrill Lynch told clients not to buy shares in Bear Stearns, Lehman Brothers and Citigroup. Banks have been hit by the problems of housing and credit markets. The downgrades came the day after Goldman Sachs cut its profit forecasts for the earnings of Bear Stearns, Lehman Brothers and Morgan Stanley. Shares in US bank State Street fell on newspaper reports that the money manager is exposed to the sorts of debt that have been causing problems in recent weeks. The Times said that State Street has the highest exposure to a particular type of package of retail and commercial loan of any bank. The mood on Wall Street worsened after the release of minutes from the 7 August meeting of the Federal Reserve's interest-rate setting committee. The minutes showed that the committee's members realized that the problems on the financial markets might need a policy response, but they did not act because they were keeping their focus on inflation. Some analysts see the minutes as an indication that there will not be a cut in the benchmark Federal Funds rate, which influences rates paid and received by the general public, in the near future. They say that the rate-setters will continue to use the discount rate, which is the rate used for lending to banks, to help out lenders who are facing a credit crunch. On Tuesday the Federal Reserve pumped 2 billion US dollars into the system. Wall Street's weak opening had an impact on European shares, which were still trading. The FTSE 100 fell 1.9% or 117.9 points to close at 6,102.2, ending a six day winning streak. In Paris, the Cac 40 fell 2.1% or 116.4 points to close at 5,474.2. In Latinamerica following on Wall Street the main markets plummeted: Brazil's Bovespa dropped 2.7%; Argentina's Merval, 4.36%; Chile's IPSA, 2.43% and in Mexico the fall was the third largest this year, 3.3%. Share prices in Japan fell 2.5% at the opening of the market on Wednesday.