Recession fears drag shares lower

US stocks fell in morning trading in New York, echoing declines in Europe and Asia as fears of a global recession continued to hit investor confidence.

Wall Street's main Dow Jones index was down 2.9%, while in Europe, the UK's FTSE 100 lost 4.5%, Germany's Dax fell 5%, and France's Cac gave up 5.1%.

had lost 4.5% in late trading, and Germany's Dax ended down 5%.

Job cuts at Yahoo and drugs firm Merck have increased economic concerns.

The falls came as the White House said a global summit to tackle the financial crisis will be held next month.

The meeting will debate the reforms needed to avoid another financial crisis and look at the progress currently being made.

Leaders from the G20 group of nations - the world's leading industrialised countries and major developing nations - will attend

'Rapid deterioration'

Investor sentiment was also hit on Wednesday by warnings from both UK Prime Minister Gordon Brown and Bank of England Governor Mervyn King that Britain was most likely now entering its first recession in 16 years.

In the short term, the comments made by Mervyn King highlighting the fact that the economic environment has deteriorated quite rapidly over the past year have sent a shudder through the foreign exchange and equity markets," said Henk Potts, an equity strategist at Barclays Wealth.

"There's been a housing slump, the labour market has been suffering and business confidence has been hammered - it's no surprise that investors are spooked," he added.

Stocks were also dragged down by commodity stocks tracking weaker oil and copper prices.

Parmalat shares hit by US ruling

Shares in Italian dairy group Parmalat have dived after the firm was ordered to pay Citigroup $364m in damages.

Parmalat had accused Citigroup of actions that contributed to its collapse in 2003, but a New Jersey court found in favour of Citigroup.

Parmalat had been seeking about $2bn in damages from Citigroup, but the US bank had countersued.

Parmalat's shares were suspended early on Tuesday morning, and when trading resumed they fell almost 19%.

Hiding losses

Parmalat collapsed in December 2003 after uncovering a 4bn-euro hole in its accounts. It sued Citigroup, accusing the bank of helping to cover up the corrupt activities of Parmalat officials.

Specifically, it accused the US bank of ignoring warning signs at the Italian company in order to secure high advisory fees and bonuses for its bankers, and of helping the company to hide its losses by providing loans that did not appear as debt on Parmalat's balance sheet.

Citigroup argued that it believed Parmalat was financially healthy and that it was deceived by the diary giant.

It claimed to have lost $699m at the time of Parmalat's bankruptcy filing.

Legal battle

Following the ruling by the New Jersey court, Parmalat said it planned to "continue to pursue all legal remedies at its disposal to hold Citigroup accountable for its role".

Parmalat also said the damages award was subject to review by a bankruptcy court in Parma, Italy.

Andrea Hurst, spokeswoman for Citigroup, said: "Citi is pleased with the verdict. We have said from the beginning that we have done nothing wrong."

Parmalat emerged from bankruptcy in 2005. Chief executive Enrico Bondi has filed many lawsuits against former Parmalat bankers and auditors, including Bank of America and auditor Grant Thornton International.

Growth worries force euro lower

The euro fell to a 19-month low against the dollar in early Tuesday trading on growing concerns among investors about faltering European economic growth.

The single European currency dropped to a low of 1.3237 dollars before rallying slightly to 1.3243 near mid-afternoon.

The US dollar gained strength after US Federal Reserve boss Ben Bernanke signalled on Monday there could be new plans to stimulate the US economy.

The news calmed investors, with the Dow Jones index closing up 4.7%.

There are growing fears that the world's largest economy is heading towards recession and although Mr Bernanke stopped short of saying the US was in recession, he said the American economy was now in a "very serious slowdown".

Speaking to the US House of Representatives' budget committee on Monday, he said consideration of a fiscal package by the Congress now seemed "appropriate".

On 15 July, the dollar hit $1.6038 to the euro - a record low in value for the greenback against the single European currency.

But since then, the dollar has gained 20%, fuelled by speculation it will take advantage of a slowing European economy.

'More inequality' in rich nations

The gap between rich and poor in most wealthy nations has widened, the Organisation for Economic Co-operation and Development (OECD) has said.

Across the 24 OECD countries where data was available, the cumulative rise in inequality was 7% over the past 20 years, the Paris-based group said.

But this was not as large a rise as had been expected, it said.

Since 2000, income inequality had risen sharply in the US and Germany and declined in the UK, Mexico and Greece.

But the OECD report, which covers a period of two decades between 1985 and 2005, said the UK still had one of the highest levels of income inequality in the developed world.

The 'Hello' effect

The report found that the income of the richest 10% of people was, on average, nearly nine times that of the poorest 10%.

But the size of the income differentials varies, with the greatest disparity in Mexico, which has a ratio of 25 to one, followed by Turkey and the US.

The most equal distribution of wealth is in the Nordic countries, including Denmark, Sweden and Finland.

"The increase in inequality, though widespread and significant, has not been as spectacular as most people probably think it has been," the report said.

It added that the difference between what the data indicated and what people thought was likely to reflect the "Hello magazine effect", meaning that people read widely about the super-rich and imagined many people lived the life of luxury.

Children and low-skilled workers were more likely to be poor than the population in general, said the OECD, which represents the world's richest countries.

Meanwhile, pensioner poverty has fallen in many countries, with those around retirement age seeing the biggest increases in incomes over the past 20 years.

Labour market changes

Launching the report in Paris, OECD Secretary-General Angel Gurría warned of the dangers posed by inequality and the need for governments to tackle it.

"Growing inequality is divisive. It polarises societies, it divides regions within countries, and it carves up the world between rich and poor," he added.

In developed countries, governments had been taxing more and spending more on social benefits to offset the trend towards more inequality, but the effectiveness of these policies had declined, the OECD said.

As an example, OECD countries spend three times more on family policies than they did 20 years ago and yet single-parent households are three times as likely to be poor.

Poverty is defined as applying to households with less than half the median income.

"Trying to patch the gaps in income distribution solely through more social spending is like treating the symptoms instead of the disease," said Mr Gurría.

He urged governments to act to increase education opportunities and job prospects for blue collar workers and to offer welfare-in-work to working-class families to boost income.

Bernanke supports higher spending

US Federal Reserve chief Ben Bernanke has said more government spending may be needed to combat economic weakness.

A fresh round of stimulus would be a good idea, he told the US House of Representatives budget committee.

Although Mr Bernanke stopped short of saying the US was in recession, he said the American economy was now in a "very serious slowdown".

Hopes of a fresh economic stimulus package pleased investors, with the main Dow Jones index ending up 4.7%.

"Consideration of a fiscal package by the Congress at this juncture seems appropriate," said Mr Bernanke.

His comments were welcomed by Democratic leaders in Congress, who called on Republicans and the White House to work together to formulate a plan.

A White House spokesman said it would have to wait and see what Democrats, who control both halves of Congress, put forward.

'Serious consequences'

A series of crises in the housing, credit and financial sectors have badly hit the US economy.

Many analysts are forecasting the US economy will shrink later this year and early next year. This would meet the classic definition of a recession - which is two quarters of negative growth.

However, some economists believe the economy is already in a recession, something that Mr Bernanke more than hinted at.

"We are in a very serious slowdown in the economy which has very serious consequences for the public," he said.

"Whether it's called a recession or not is of no consequence."

'Promoting growth'

In his speech before the committee, Mr Bernanke suggested that Congress should design a stimulus package so that it would be "timely and well-targeted".

He said it should limit the longer-term impact on the government's budget deficit, which hit a record high in the last financial year.

Any government spending would need to kick in quickly to encourage people and businesses to boost spending and help the economy during the period in which economic activity would be otherwise weak, he said.

The Federal Reserve chairman also said the package should include provisions that would aid the jammed credit markets, which has been a major factor in the economy's slowdown.

"If the Congress proceeds with a fiscal package, it should consider including measures to help improve access to credit by consumers, home buyers, businesses and other borrowers," he said.

"Such actions might be particularly effective at promoting economic growth and job creation," he added.

Tech firms warn of lower profits

Texas Instruments (TI) and computer hardware maker Sun Microsystems have both warned of lower future profits.

Based on recent weak order trends, TI said it now expected earnings per share of 30-36 cents in the last three months of 2008, below forecasts.

The warning came as the chip firm reported quarterly net income of $563m, down from $776m last year.

Sun Microsystems warned it would report a wider-than-expected loss in the final quarter of the year.

As most industries suffer from the global squeeze on credit and a consumer slowdown, so many technology firms are feeling the effects from a drop in demand.

Streamlining

"Our outlook for the fourth quarter is for revenue to decline substantially based on weak order trends over the past few months," said Rich Templeton, TI chairman, president and chief executive.

As a result, the Dallas-based firm said it had aggressively reduced inventory and would continue to do so until the end of the year.

TI also said it was in talks to sell part of its business of making wireless chips - the division that makes off-the-shelf chips for mobile phone handsets.

It said the move would help it cut costs by more than $200m a year.

The Dallas-based firm said it would focus on investing in custom-design chips, which are used in many smartphones.

Separately, Sun said it expected to report a net loss for the final three months of 2008 of 25-35 cents a share, surprising analysts who had expected the firm to post a net loss of 16 cents a share.

"Sun and its customers are seeing the impact of a slowing economy," said chief executive Jonathan Schwartz in a prepared statement.

Chinese economy growth rate slows

China's economic growth rate has fallen for the third quarter in succession, amid fears that the economy could be heading for a severe downturn.

The National Bureau of Statistics said the economy had grown at a rate of 9% in the three months to September - down from 10.1% over the previous quarter.

Spokesman Li Xiaochao said the impact of the global financial crisis had far exceeded the government's expectations.

Meanwhile shares rose in Asia. Japan's Nikkei index ended the day up 3.59%.

Share values also rose in Hong Kong, Australia, and South Korea.

No signs of recovery'

The third quarter growth rate announced on Monday marked a significant fall from the 10.4% growth of the first half of 2008, and the 12.2% growth seen in the first three quarters of 2007.

"There are no signs of a definite recovery from the financial crisis," statistics bureau spokesman Li Xiaochao told a news conference.

"The growth rate of the world economy has slowed down noticeably. There are more uncertain and volatile factors in the international economic climate," he said. "All these factors have started to release their negative impact on China's economy."

Correspondents say indicators from steel prices to housing sales suggest a severe economic slowdown could be in prospect.

Chinese factories are reporting that export orders are down sharply. Last week, the government said that half the country's toymakers had gone out of business.

Mr Li said the government had initiated timely measures to deal with the economic slowdown and cushion the impact from the global credit crisis, including falling exports and a restricted credit supply.

These included changing its focus from preventing the overheating of the economy and preventing structural inflation to the "preserving growth" and "controlling" inflation, he added.

Officials said over the weekend that the government was preparing to announce tax cuts and increased infrastructure investment. Curbs on the housing market in certain areas may also be relaxed.

The People's Bank of China has cut interest rates twice and reduced banks' required reserves since mid-September. A third interest rate cut is expected later this year.

The BBC's Quentin Sommerville in Shanghai says that although the government it is doing what it can to boost demand at home, China's new middle class is already feeling the pinch.

The stock market is sharply down, so too are house prices, while car sales have slowed dramatically. Consumers are cutting down on spending as they believe there are tougher times ahead, he says.

The National Bureau of Statistics also announced on Monday that consumer price inflation had cooled to a 15-month low of 4.6% in September. In February, inflation had hit a 12-year-peak of 8.7%.

Mr Li said the slowdown in inflation showed that the policies initiated by regulators to control it had been effective.

Indian shares on US bourses defy global gloom, gain USD 7 bn

Even as the Indian markets took a beating this week, their counterparts listed on American bourses gained nearly seven billion dollars, defying the worldwide market gloom.


Led by IT major Wipro and private sector lender ICICI Bank, the 16 Indian companies trading as American Depository Receipts coughed up about 6.86 billion dollars for the week ending 17th October.



Wipro witnessed a gain of 2.44 billion dollars while ICICI Bank scrip, which had taken a severe beating in recent times in the domestic market, rose as much as 1.25 billion dollars.



Another leading private sector lender HDFC Bank's market capitalisation rose 494 million dollars.



Swinging between the extremes, global markets including the American bourses had seen high volatility, with Japan's Nikkei touching a 20-year low.



Further, the US benchmark Dow Jones Industrial Average witnessed one of the worst trading sessions in decades, before the closing the week in the green.



However, Indian benchmark index, Sensex plunged below the psychological 10,000 level on Friday last week, its lowest level in over two-years, with major bluechips taking a heavy beating.



In contrast, the 16 Indian shares listed on Nasdaq and the New York Stock Exchange collectively saw a value increase of over 11.54 billion dollars on 13th October (Monday) against the cumulative loss of 19.45 billion dollars they suffered during the week ending 10th October.



Other major gainers are IT bellwether Infosys which posted a jump of 1.17 billion dollars in market capitalisation and software exporter Satyam Computer Services gained 664 million dollars.



ICICI had recently announced mark-to-market losses to the tune of 93 million dollars, owing to its exposure in instruments of troubled financial institutions including the bankrupt Lehman Brothers.



Interestingly, in the domestic bourse, the scrip had touched an all-time high of Rs 1,465 in January this year before tumbling to a two-year low of Rs 364.



BPO firms - ExlService Holdings and Genpact; internet companies - Sify Technologies and Rediff; telecom entity Tata Communication, pharma major Dr Reddy's and copper producer Sterlite Industries, also gained during the week.



However, outsourcing firm WNS, IT company Patni Computer Systems, telecom entity Mahanagar Telephone Nigam Ltd and auto maker Tata Motors saw marginal declines in their market capitalisation.

S Korea guarantees foreign loans

South Korea's government has agreed to guarantee foreign-currency borrowing by the country's banks to help stabilise financial markets.

The finance ministry, the central bank and the financial services commission said about $100bn of borrowing would be covered by the package.

The government will also provide $30bn of liquidity to banks, and there will be more aid to small businesses.

South Korea's economy is the third largest in Asia and 13th in the world.

It enjoys major export success in a number of manufacturing industries, but especially shipbuilding, car-making, and electronics.

However, the country has appeared particularly vulnerable to the global credit crisis because its banks lacked sufficient dollars to service maturing foreign debt.

Falling currency

In a statement, the government said it would guarantee for three years all external debt taken on by South Korean banks before 30 June 2009 in order "to avoid placing domestic banks at a comparative disadvantage in terms of overseas funding and to allay fears in the financial market".

A further $750m will be injected into the Industrial Bank of Korea, so it can expand lending to small businesses.

The shortage of dollars is having a dramatic effect on the country's exchange rate, making it more difficult for businesses and individuals to get access to credit, says the BBC's John Sudworth in Seoul.

The South Korean won has fallen by almost 30% against the dollar this year making it Asia's worst performing major currency.

The government said that despite the crisis, the economy and the financial sector were "sound", and that its foreign exchange reserves were "sufficient".

The US, the EU and other governments have also announced multi-billion dollar packages aimed at stabilising markets.

French bank admits trading loss

French Finance Minister Christine Lagarde has called for a special audit of all French banks after Caisse d'Epargne admitted a big trading loss.

The mutual savings bank said it lost 600m euros ($807m; £466m) in a derivatives trading incident last week.

In a statement, the bank said that the losses would not threaten its financial viability or affect its customers.

It blamed the "extreme volatility" in the markets in the week of 6 October for the incident.

A Caisse d'Epargne spokesman said the loss was caused by a "small team", which had been sanctioned for exceeding its trading risk limit.

The bank said that it had sacked one of the assistants to finance director Julien Carmona.

Merger plans

Caisse d'Epargne said this latest incident would not affect its plans, announced on 8 October, to merge with another mutual bank, Banque Populaire.

The merger would create one of France's biggest banks with 480bn euros of deposits and more than six million customers.

The two banks together are the majority shareholders in the investment bank Natixis, which has been among the worst-hit in France by the US sub-prime mortgage crisis.

Seperately, rumours of a big derivatives loss forced Societe Generale and Dexia to issue denials earlier in the week.

Leaders to rethink global finance

President George W Bush has invited world leaders to gather in the US by the end of the year to discuss reform of the global financial system.

The summit would be the first of a series announced after talks between Mr Bush, French President Nicolas Sarkozy and EU Commission chief Manuel Barroso.

But the agenda is unclear and differences are already emerging.

Mr Bush said any plan must not undermine free markets. Mr Sarkozy said "hateful practices" must be abandoned.

Before he arrived at Camp David, the US presidential retreat in the state of Maryland, the French leader warned the world could not "continue to run the economy of the 21st Century with instruments of the economy of the 20th Century".

Calls for action

After the meeting, Mr Bush said: "It is essential that we work together because we are in this crisis together."

He went on to invite world leaders to an economic summit after the US election in November, to discuss responses to the current financial crisis.

"Together we will work to modernise and strengthen our nations' financial systems so we can help ensure this crisis doesn't happen again," he added.

But Mr Bush said any plan to rethink financial mechanisms should "preserve the foundations of democratic capitalism" and include "a commitment to free markets, free enterprise and free trade".

'New order'

Mr Sarkozy said the crisis could offer a "great opportunity" to build the capitalism of the future and leave behind the "hateful practices" of the past.

"We cannot continue along the same lines because the same problems will trigger the same disasters," he warned.

Mr Sarkozy said the hedge funds, tax havens and financial institutions operating without supervision should all be re-thought.

"This is no longer acceptable," he added. "This sort of capitalism is a betrayal of the sort of capitalism we believe in."

European Commission President Manuel Barroso, who also took part in the talks, said: "We need a new global financial order."

Details of the summits are still to be worked out, but White House spokesman Tony Fratto said the first was likely to be held in November.

He added that Mr Sarkozy had recommended New York as a location. UN Secretary General Ban Ki-moon has proposed using the organisation's headquarters there as a venue.

That summit would seek to "review progress being made to address the current crisis and to seek agreement on principles of reform needed to avoid a repetition," the leaders said in their statement.

"Later summits would be designed to implement agreement on specific steps to be taken to meet those principles," it added. Other world leaders are to be consulted over the plan.

Correspondents say such meetings would echo the Bretton Woods conference of 44 nations after World War II, which established many of the institutions and monetary systems that are now under threat