The FTSE 100 index of leading UK shares fell by as much as 5 per cent in early trading yesterday, dropping well below the 5,000 barrier, but bounced back into the black later in anticipation of the Fed's statement. It closed at 5,165, up 1.9 per cent.
In Britain, the latest figures on manufacturing confirmed other evidence of a pronounced slowdown in industrial production. The news will add to pressure on the Bank of England to follow the Fed and also ease monetary policy. Oil prices, closely linked to the strength of the world economy, slipped again, at one point falling below $100 a barrel – something that will take the edge off inflationary pressures. In China, more signs of overheating had heightened expectations that the Beijing will act to cool her economy.
In Europe shares also gyrated as jittery investors struggled again to minimise their loses with a second day of across-the-board sell offs. Germany's Dax hit an 18-month low, plunging over 7 per cent, and the French Cac index opened sharply lower, but both markets rallied later in the day.
Some analysts described investors' selling on Monday and yesterday morning as "hysterical" and said it had little to do with economic factors. "It is simply indicative of a loss of confidence in politicians, the banks and the ratings agencies," said Anita Paluch of ETX Capital in Frankfurt.
However there was better news on bond markets where the yield on both Spanish and Italian government bonds fell for a second day in response to the decision by the European Central Bank (ECB) to intervene on behalf of the weakened eurozone members and to begin buying up Spanish and Italian debt in order to reduce the two countries' borrowing costs. Both are struggling to avoid the kind of bailouts necessary to rescue ailing Greece, Portugal and Ireland.
