Government steps to shore up the banking system and unfreeze credit markets showed some signs of progress yesterday, but grim news from major economies reinforced fears of recession and hammered global markets.
US stocks bucked the global trend to end higher, clawing back some of Wednesday's steep losses despite news of lay-offs in the auto-industry, a slowdown in industrial production and more warnings about the state of the economy.
Banks, which are at the heart of the crisis, were in the spotlight again.
Switzerland's top two banks, UBS AG and Credit Suisse Group AG (CS), took emergency measures to shore up their finances. In the United States Merrill Lynch and Citigroup reported heavy losses on bad loans and tough-to-sell mortgage securities.
In a sign of easing strains in the credit markets, rates that banks charge each other for loans mostly fell in response to radical moves by central banks to provide liquidity, bolster banks and loosen credit lines to institutions needing cash.
However, US financial institutions borrowed record amounts of cash from the Federal Reserve in the latest week, according to Fed data released yesterday, indicating that credit conditions in the United States remain constrained.
European Union leaders vowed to shield their industries from the global crisis and pushed plans for a global summit to overhaul the world financial system.
Asian, European and emerging market stock markets took another battering on Thursday. Japan's Nikkei fell 11 per cent in its worst one-day drop since the stock market crash of October 1987, oil fell more than 6 percent to below $70 a barrel, and European shares lost 5 per cent.
But in New York, the allure of heavily battered shares drew buyers one day after Wall Street's worst day in more than 20 years. The Dow ended up 4.68 per cent and the S&P 500 rose 4.25 per cent, buoyed by consumer companies that benefit from lower oil prices. The dollar also rose.
Wednesday's sharp fall had dragged the Dow down about 40 per cent from its record closing high of 14,164.53 hit on October 9th, 2007. Investors have pulled over $50 billion from stock funds so far in October, depressing prices in equities.
The rally in stocks drove up oil prices in electronic trade following the US settlement, with crude futures rising more than $3 a barrel.
A Reuters poll of economists said the world's richest nations are in, or close to, recession.
Germany slashed its forecast for 2009 economic growth to 0.2 percent from 1.2 per cent. In Japan, a Reuters poll showed manufacturing business sentiment hit a six-year low this month.
At a meeting in Brussels, European Union leaders vowed action to underpin growth and jobs threatened by the global financial crisis but ruled out spending their way out of recession with a Europe-wide stimulus package.
Reuters