Market turmoil raises fears for global growth

A day of extraordinary volatility on world stock markets has left nerves on edge, as investors worry about the outlook for global growth.

Investors in the US stock market dumped shares in early trading and European markets had their worst day since the 2008 crisis, as fears grew that the slowdown in the world's second-largest economy, China, may be worse than feared.

US prices recovered later, though were still significantly lower on the day, closing down 3.57 per cent at 15871.35.

Worst day

European markets had their worst day since the outbreak of the financial crisis, with the Iseq index of Irish shares dropping by 5 per cent and other major markets dropping by similar amounts.

At one stage European markets were down more than 8 per cent.

Reflecting the partial US market recovery, European shares rose in after-hours trading, though most analysts feel more volatility lies ahead.

Thin summer trading volumes may also have added to the volatility.

The Chinese markets had dropped by 8.5 per cent overnight. For a time, the rippling effect of the global plunge that followed reminded the markets of the panic that gripped investors during the crisis of 2008.

The Dow Jones industrial average fell a hair-raising 1,089 points, or 6.6 per cent, after opening before recovering much of that ground later.

The US market had already fallen more than 10 per cent from an all-time high, in May, before yesterday’s early decline, in what appears to be the first major international market correction since April 2011.

Unsettled

The growth slowdown in the Chinese economy has unsettled investors. China recently devalued the yuan following a slump in trade and reported an unexpectedly large fall in July exports.

This has also knocked on to sharp falls in the currencies of other so-called emerging markets and raised fears about the outlook for the global economy.

Uncertainty around whether the Federal Reserve, the US's central bank, will raise interest rates next month has added to the volatility.

Most analysts now believe the Fed will hold off raising rates. One effect was to drive the dollar lower against the euro, a move that will hurt Irish exporters.