Stocks set to rebound from huge drop

NEW YORK - Wall Street headed for a sharply higher open Friday as a strong outlook from IBM encouraged investors to buy back into stocks after their huge drop this week.

The market remains extremely skittish, however. The Dow Jones industrial average, having suffered its worst three-day plunge in over five years, is now at levels not seen since last March. Though some companies are weathering the economic slowdown well — like International Business Machines Corp., which told Wall Street late Thursday to raise its 2008 profit estimates for the tech company — others are struggling.

Washington Mutual Inc. reported a steep loss late Thursday for the fourth quarter, just as Citigroup Inc. and Merrill Lynch did earlier in the week. With the banking industry trying to fix its shrinking portfolios and preparing for more distress in consumer debt, the economy has only the government to fall back on.

Federal Reserve monetary policymakers meet Jan. 29-30, and the market widely expects them to lower the key interest rate, perhaps by a half-point.

And at 11:50 a.m. EST, President Bush is expected to speak on the economy and discuss a plan to stimulate the economy through tax rebates and other strategies.

Investors also awaited consumer sentiment data from the University of Michigan, which is expected to indicate a decline as worries escalate about a possible recession. Though not a perfect predictor of consumer spending, the report is closely watched; consumer spending accounts for about two-thirds of the nation's economy.

Dow Jones industrial average futures rose 114, or 0.93 percent, to 12,330.

Standard & Poor's 500 index futures gained 14.40, or 1.07 percent, to 1,354.10, while the Nasdaq 100 index futures advanced 18.50, or 1.00 percent, to 1,874.

The dollar rose against most major currencies, while gold fell.

Crude oil futures dipped 3 cents to $90.10 a barrel in pre-market trading on the New York Mercantile Exchange.

In overseas trade, Japan's Nikkei stock index closed 2.07 percent higher and Hong Kong's Hang Seng index rose 0.35 percent. In Europe, London's FTSE 100 rose 1.31 percent, Frankfurt's DAX slipped 0.05 percent and Paris' CAC advanced 0.28 percent.

NYSE snaps up Amex, ending long rivalry

NEW YORK - The New York Stock Exchange has agreed to buy the American Stock Exchange, ending a once intense rivalry that began in colonial times when brokers traded in outdoor markets.

Both exchanges have battled for corporate listings and bragging rights since the early 1900s, with their trading floors just a short walk away from one another in Lower Manhattan. Newspapers around the country all listed the stock swings on the nation's two dominant markets, until investors began paying more attention in the 1990s to technology issues on the upstart Nasdaq Stock Market.

Their evolution took a very different path — with the Big Board forming NYSE Euronext to become the world's first trans-Atlantic exchange. The Amex, unable to compete like it once did, began to focus on trading options and other financial products.

The Amex, which once hosted the likes of big-name stocks such as The New York Times Co. and The Washington Post Co., now trades generally smaller companies that are often too illiquid to meet the standards of bigger rivals.

NYSE Euronext said it would pay Amex's seatholders, who are generally members that trade at the exchange, $260 million in stock. In addition, they would receive more stock after the sale of the Amex's landmark building on 86 Trinity Place — an art deco building it moved into in 1921 that sits only blocks away from the World Trade Center site.

The deal will give NYSE Euronext a second U.S. license for an option exchange. It would make the NYSE the nation's third-largest player in the $1.3 trillion options marketplace.

The NYSE has been looking to move further into the options business, and will meld the Amex's floor into its own. Electronic trading of Amex-listed options and ETFs would be done on the NYSE's Archipelago platform.

Shares of NYSE Euronext rose $2.33, or 3.3 percent, to $73.40 in after-hours trading after it closed Thursday at $71.07.

Though many had long expected the Amex to be swallowed up by a larger rival, traders who have worked on Wall Street for decades were still stunned. It marked the latest exchange to go silent in the past few years, following the lead of names like the West Coast's Pacific Exchange.

"You have such a heritage that's involved in this. In a time of need, I think all that heritage — people are willing to throw the books into the fire," said Robert Smith, chairman and chief executive of Smith Affiliated Capital in New York, who has worked on Wall Street for 50 years.

"I think all you can do is have fond memories but you cannot do anything to avoid the book burning," he said. "The exigencies of the present demand you just obliterate the past."

The Amex has roughly 470 employees after cutting more than 360 last year. It was not known how many of the floor traders, specialists and others would lose their jobs once the firms they work for consolidate operations at the NYSE.

The acquisition is the first big move by NYSE Chief Executive Duncan Niederauer, who stepped in when John Thain left in late 2007. He said the deal will realize annualized run rate cost synergies of over $100 million within two years of closing.

"We looked across the ocean first with Euronext and then we looked in our own back yard," said Larry Leibowitz, the head of U.S. products at NYSE. "It was a good fit.

For Amex CEO Neal Wolkoff, the agreement caps a yearlong review of potential deals including a proposed initial public offering led by the New York-based investment bank Morgan Stanley.

The announcement to traders was emotional.

"I saw tears," Wolkoff said. "People misted up. I think people think of this as something they've been waiting to see happen. It's very moving."

Volatility grips world stock markets

LONDON (AFP) - Volatile trading dogged world stock markets on Friday ahead of a key announcement from US President George W. Bush aimed at stimulating the battered US economy.

London's leading share index rose by more than 1.0 percent near the half-way mark, while Tokyo ended higher after tumbling by almost 3.0 percent earlier Friday.

President George W. Bush was on Friday to announce "short-term, temporary measures" to stimulate the economy, said White House spokesman Tony Fratto, amid fears that the world's biggest economy is heading for a sharp downturn.

"Everyone is waiting for the announcement of the US stimulus package" said Shunichi Umemoto, analyst at Tokai Tokyo Research Center.

"We just have to see how many details President Bush will announce."

Nearing midday, London's FTSE 100 index of leading shares showed a gain of 1.39 percent at 5,984.20 points. Frankfurt's DAX 30 edged up 0.08 percent to 7,419.31 points and the CAC 40 in Paris gained 0.27 percent to 5,171.13.

Global stocks have fallen sharply this week on fears that a US recession could have far-reaching implications.

In Asia on Friday, the Tokyo Stock Exchange's benchmark Nikkei-225 index ended up 0.56 percent in anticipation of the measures by Bush, staging a dramatic late turnaround after tumbling 2.81 percent in the morning.

Hong Kong dropped 1.22 percent but off its lows while losses in mainland China were limited with the Shanghai Composite index down 0.31 percent.

Other bourses also trimmed or reversed their falls, with Seoul closing up 0.6 percent, Sydney down 0.8 percent and Taipei up 1.02 percent in late bargain-hunting. Singapore was 0.38 percent lower.

US shares plummeted to fresh lows Thursday after US Fed Chairman Ben Bernanke said the foundering US economy could use a stimulus package and as finance giant Merrill Lynch reported a huge loss.

Bernanke "lent his support to the idea of a temporary fiscal stimulus, the general thrust of which looks likely to be revealed by President Bush later today," said Calyon analyst Daragh Maher.

The Dow Jones Industrial Average sank 2.46 percent to close at 12,159.21, the lowest level for blue chips since March 2007.

The tech-heavy Nasdaq composite lost 1.99 percent to 2,346.90 and the broad-market Standard & Poor's 500 dropped 2.91 percent to end at 1,333.25.

The problems facing the US stem from subprime mortgages that flourished at the end of a US housing boom as lenders offered loans to people with shaky credit histories.

But a wave of defaults on the loans has left US and global banks with mortgage-linked investments nursing billions of dollars in losses. The subprime crisis has also led to a credit crunch, threatening the overall economy.

"Whether the (Bush) stimulus package will be sufficient or not, we don't know at this point, but how deep the US slowdown is will be the more critical part," said Suan Teck Kin, an economist at United Overseas Bank.

Futures up sharply after recent losses

NEW YORK (Reuters) - Stock futures rose on Friday, suggesting a rebound from recent session losses, helped by a higher-than-expected profit forecast from IBM (IBM.N) and earnings from economic bellwether General Electric Co (GE.N).

Technical charts showed the market at its most oversold level since October 2002, on a weekly basis, which could help a rebound.

IBM, which reported after Thursday's close, gained in Europe after the world's largest computer services company forecast 2008 earnings well above Wall Street estimates. IBM shares in Frankfurt (IBM.F) were up 4.4 percent.

 

GE's earnings met expectations, helping to give an additional boost to stock futures.

"The numbers were good. But you're talking about a pebble in the ocean," said Rick Meckler, president of Libertyview Capital Management in Jersey City, New Jersey. "It certainly shows there are some people who are doing OK in this environment, certainly with a weaker dollar."

S&P 500 futures were up 16.10 points, well above fair value, a mathematical formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract.

Dow Jones industrial average futures rose 114 points, and Nasdaq 100 futures gained 22 points.

The bond market is expected to close early on Friday, and U.S. markets will be closed on Monday for a federal holiday honoring Martin Luther King Jr.

Options expiration could add to stock market volatility.

Overseas, European stocks turned positive (.FTEU3) and Asian stocks ended higher.

As worries mount about the health of the U.S. economy, U.S. President George W. Bush will offer ideas on Friday for stimulus measures aimed at averting a recession.

On Thursday, U.S. stocks fell, with the benchmark S&P 500 plummeting to a 15-month low, as news of a plunge in regional factory activity and a hefty loss at Merrill Lynch (MER.N) further clouded an increasingly dire view of the economy.

The Dow Jones industrial average (.DJI) fell 2.46 percent, the Standard & Poor's 500 Index (.SPX) was down 2.91 percent, and the Nasdaq Composite Index (.IXIC) was down 1.99 percent.

Asia markets mostly recover from plunge

TOKYO - Major Asian markets recovered from early plunges Friday on hopes that Washington will soon propose measures to keep the U.S. economy from sliding into a recession. Investors snapped up shares that had been beaten down in recent weeks.

Meanwhile, in Europe, major indicators edged up in London and Paris and eased in Germany.

In Tokyo, the region's biggest market, the benchmark Nikkei 225 stock index rose 0.6 percent to 13,861.29, reversing an opening 3 percent plunge in the wake of an overnight drop on Wall Street.

Hong Kong's blue chip Hang Seng index rose 0.4 percent to 25,201.87 after plummeting as much as 3.9 percent in morning trade.

Investors were heartened by news that U.S. President George W. Bush is expected to outline his position later Friday on an emergency economic stimulus package that is being negotiated in Congress. Bush told congressional leaders that he favors income tax rebates to spur the economy, which has been battered by a credit crisis and slowdown in its housing market.

"The reports that Mr. Bush may have a plan for the subprime mortgage crisis made the Nikkei rise," said Noritsugu Hirakawa who monitors stock trading at Okasan Securities Co. in Tokyo. "Japanese stocks may be bottoming out."

Worries about a slowdown in the U.S. economy — a major export market — have dragged down Asian markets for most of the last two weeks, including a gut-wrenching rout on Wednesday.

Friday morning, it appeared that trend would continue as investors reacted nervously to an overnight plunge on Wall Street, unexpectedly weak U.S. manufacturing figures and dismal housing starts data.

But as the day progressed, investors bought up shares, especially those viewed as less exposed to the U.S. economy, causing several markets to recover. By the day's end, markets in China, South Korea and Taiwan were also higher.

"After declining by so many points, more than 3,000 in five days, the Hong Kong market is really cheap now. It represents good value," said Francis Lun, a general manager at Fulbright Securities in Hong Kong.

Gainers in Hong Kong included Industrial & Commercial Bank of China, up 5.4 percent, and China Telecom, which rose 2.8 percent. In Japan, Nippon Steel Corp. jumped 5.2 percent and property company Sumitomo Realty & Development Co. surged 8 percent.

Others markets, however, fell sharply. India's benchmark index dropped 3.5 percent, and in Philippines' key index sank 2.5 percent.

Some speculation emerged in Hong Kong that the U.S. Federal Reserve might cut interest rates before their next meeting on Jan. 29-30 — and perhaps even later in the day.

"We bet on a 50 basis-point rate cut by the U.S. Fed before the FOMC meeting later this month, with a good chance tonight," said Ernie Hon at ICEA Securities, referring to the policy-setting Federal Open Market Committee.

Beyond alleviating concerns about the American economy, a rate cut by the Fed would also benefit the local market, particularly property stocks. Hong Kong rates tend to track U.S. rates because of the local currency's peg to the U.S. dollar.

Still, investors around the world remain jittery about the full extent of the subprime mortgage crisis in the U.S., which has led to a credit crunch and billions of dollars (euros) of losses at major American investment banks Citigroup and Merrill Lynch & Co. due to write-downs of bad assets.

And recent signs of slower U.S. consumption has added to concerns that the American economy might contract, weakening demand for Asian electronics, autos, clothing and other exports.

Castor Pang, a strategist with Sun Hung Kai Financial in Hong Kong, said market were "in a seesaw situation."

"Investors don't have a direction," he said. "They're waiting for news out of the U.S."

In Europe, London's FTSE 100 rose 1.31 percent, Frankfurt's DAX slipped 0.05 percent and Paris' CAC advanced 0.28 percent.

FTSE higher on mining bid talk

London equities made steady progress on Friday after miners benefited from fresh bid speculation, but further turbulence in the financial sector cast a shadow over sentiment.

The FTSE 100 rose 1.2 per cent to 5,975.0, an advance of 68 points after a volatile morning. The Mid-cap FTSE 250 was 1 per cent higher at 9,756.8.

Weaker-than-forecast retail sales in December added to hopes for a rate cut in February. The Office of National Statistics said the measure of consumer spending fell 0.4 per cent from November, defying expectations of a 0.2 per cent rise.

London's mining sector once more dominated the upside. There was fresh rumours that BHP Billiton (NYSE:BHP) was preparing to sweeten its unsolicited offer for peer Rio Tinto, indicating the inclusion of a significant cash element. Shares in Rio rose 2.3 per cent to £46.04, whilst BHP rose 0.2 per cent to £13.50.

Wall Street screens were awash with red overnight, despite hopes for an aggressive fiscal action plan to ward off the threat of a recession. A closely watched survey of regional US manufacturing activity by the Philadelphia Federal Reserve, moved into recession territory and US bond insurers faced the threat of losing their triple-A ratings. The S&P 500 index ended down by 2.9 per cent at 1,333.3, its lowest close in 15 months.

The growing sense of uncertainty hit financial services stocks in the UK.

New Star Asset Management, a fund manager heavily exposed to the commercial property sector, crashed 49p or 33 per cent to 98p, after warning this year's profits would be "significantly lower" than 2007 and cutting its dividend.

It added that its European mutual funds and some of its UK mutual funds were badly positioned for the combination of the credit squeeze and high natural resource prices in the second half of 2007. As a consequence, the majority of New Star's UK and European equity mutual funds significantly underperformed their peers.

Interdealer broker Icap was the biggest loser on the FTSE 100, down 3.9 per cent at 625p. Fund manager Schroders fell 4 per cent to 935p and Barclays (NYSE:BCS) was 1.6 per cent softer at 458½p.

Carphone Warehouse moved either side of the flatline after it missed forecasts for the number of network connections it sold during the peak Christmas trading period, but stood by its existing profit guidance for the full-year. in mid-morning trade, its shares were 3 per cent higher at 314p.

News of further emergency engineering work at one of British Energy's ageing nuclear reactors, costing £50m at its Heysham plant in Lancashire, sent shares in the company 1.6 per cent lower to 511½p.

Oil companies stood out on the downside as crude drifted under $90 per barrel. BP lost 0.5 per cent to 551p, with Royal Dutch Shell 0.8 per cent weaker at £18.96. Cairn Energy lost 0.5 per cent to £24.88.

FTSE falls after Wall Street sell-off

London equities fell in opening trade on Friday, after big losses on Wall Street overnight fostered further concern about the health of the US economy.

The FTSE 100 started the session 0.5 per cent lower at 5,872.5, a loss of 30 points led by oil and banking stocks. Mid-cap retailers pressured the FTSE 250, which lost 0.8 per cent to 9,648.9.

Wall Street screens were awash with red overnight, despite hopes for an aggressive fiscal action plan to ward off the threat of a recession . A closely watched survey of regional US manufacturing activity by the Philadelphia Federal Reserve, moved into recession territory and US bond insurers faced the threat of losing their triple-A ratings. The S&P 500 index ended down by 2.9 per cent at 1,333.3, its lowest close in 15 months.

The growing sense of uncertainty hit financial services stocks in the UK.

New Star Asset Management, a fund manager heavily exposed to the commercial property sector, crashed 88½p or nearly 40 per cent to 58½p, after warning this year's profits would be "significantly lower" than 2007 and cutting its dividend.

It added that its European mutual funds and some of its UK mutual funds were badly positioned for the combination of the credit squeeze and high natural resource prices in the second half of 2007. As a consequence, the majority of New Star's UK and European equity mutual funds significantly underperformed their peers.

Interdealer broker Icap was the biggest loser on the FTSE 100, down 3.9 per cent at 625p. Fund manager Schroders fell 4 per cent to 935p and Barclays (NYSE:BCS) was 1.6 per cent softer at 458½p.

Carphone Warehouse lost 3.2 per cent to 295p after it missed forecasts for the number of network connections it sold during the peak Christmas trading period, although it stood by its existing profit guidance for the full-year. Shares in the retailer lost 3.5 per cent to 294.3p.

News of further emergency engineering work at one of British Energy's ageing nuclear reactors, this time costing £50m at its Heysham plant in Lancashire, sent shares in the company 1.6 per cent lower to 511½p.

Oil companies stood out on the downside as crude prices stayed under $90 per barrel, trading at $89.16. BP lost 0.5 per cent to 551p, with Royal Dutch Shell 0.8 per cent weaker at £18.96. Cairn Energy lost 0.5 per cent to £24.88.

London's mining sector once more helped protect the market from wider losses. There was fresh rumours that BHP Billiton (NYSE:BHP) was preparing to sweeten its unsolicited offer for peer Rio Tinto. Shares in Rio rose 2.3 per cent to £46.04, whilst BHP rose 0.2 per cent to £13.50.

Japan stocks rebound from early plunge

TOKYO - Japanese stocks recovered from an early plunge Friday as investors scooped up shares that have been beaten down in recent days.

 While investors remained worried that a possible U.S. recession could hurt exporters' profits, they were heartened by hopes for emergency stimulus measures that President Bush planned to outline later in the day.

The benchmark Nikkei 225 stock index rose 77.84 points, or 0.57 percent, to close at 13,861.29 on the Tokyo Stock Exchange. The index broke a four-day losing streak Thursday, when it jumped 2.07 percent.

 

The Nikkei fell as much as 3 percent in early trade, sliding in the wake of an overnight plunge on Wall Street driven partly by unexpectedly weak U.S. manufacturing numbers. But it clawed its way back on bargain-hunting.

"Overly sold sectors such as real estate are especially being bought back," said Toshio Sumitani, senior strategist at Tokai Tokyo Research center. "If the market welcomes what President Bush announces later today, the Nikkei will probably recover 1,000 points easily, early next week."

Sumitomo Realty & Development Co. surged 8.01 percent to 2,425 yen, while Mitsui Fudosan Co. climbed 6.1 percent to 2,260 yen. Kobe Steel rose 3.81 percent to 354 yen, and Nippon Steel Corp. jumped 5.23 percent to 663 yen.

The broader Topix index, which includes all shares on the first section, added 11.06 points, or 0.83 percent, to 1,341.50.

In currencies, the U.S. dollar was trading at 106.96 yen at 2:50 p.m. Friday, down from 107.00 yen late Thursday in New York. The euro fell to $1.4640 from $1.4673.

Wall Street bonuses fell 4.7 percent

NEW YORK - Wall Street bonuses fell nearly 5 percent in 2007 after a relentless subprime mortgage crisis battered the stock market, forcing the country's biggest investment banks to write down billions in bad loans.

The average bonus of $180,420 in 2007 dipped 4.7 percent from the previous year, state Comptroller Thomas DiNapoli said in a statement released Thursday.

The securities industry rewarded $33.2 billion in bonuses to its New York City employees, 2 percent less than the record $33.9 billion in 2006, he said.

The numbers are taken from the seven largest financial firms headquartered in New York City, which are tracked by the comptroller's office. The firms are Citigroup Inc., Merrill Lynch & Co., JPMorgan Chase & Co., Goldman Sachs Group Inc., Bear Stearns Cos., Morgan Stanley and Lehman Brothers Holdings Inc.

All except Goldman Sachs, which largely avoided the risky loans, have been battered by the financial crisis.

While the seven firms earned $39 billion in profits during the first half of 2007, a 41 percent gain over the prior year, they lost $28 billion in the third and fourth financial quarters, DiNapoli said.

Total pretax profits for the seven firms totaled $11 billion in 2007, less than one-fifth of the $60 billion record set in 2006, the comptroller said.

Employee compensation, which includes bonuses, consumed 61 percent of the firms' revenues in 2007, up from 45 percent 2006. DiNapoli said this reflected the firms' efforts to keep high-performing employees.

Those working in mergers and acquisitions and in equities should be rewarded with bigger bonuses but employees in the fixed-income units that handle mortgages will be "dramatically lower," the comptroller said.

Compensation experts say those high-performing units will basically subsidize whatever bonuses are left to give to flagging parts of the banks' business. Because of the dismal performance of the Wall Street investment houses, Morgan Stanley Chief Executive John Mack and Bear Stearns Chairman James Cayne gave up their huge annual bonuses.

Last year, they were paid about $40 million in compensation.

Before 2007, Wall Street had been on a serious run. In 2005, $25.7 million in bonuses was handed out, up 38.2 percent from 2004.

NYSE Euronext to acquire American Stock Exchange

NEW YORK (Reuters) - Transatlantic exchange NYSE Euronext (NYX.PA)(NYX.N) said on Thursday it agreed to acquire the American Stock Exchange (Amex) for $260 million in stock to boost its options business, exchange traded funds (ETFs) and cash products.

Exchanges worldwide have embarked on a consolidation spree to expand into new markets.

NYSE Euronext operates the New York Stock Exchange and runs bourses in Paris, Amsterdam, Brussels, Lisbon and operates the Euronext.Liffe derivatives exchange.

Both the NYSE and Nasdaq Stock Market Inc (NDAQ.O) have been keen on expanding to the options markets, which offer higher margins than stock markets.

Nasdaq recently agreed to buy the Philadelphia Stock Exchange for about $652 million and to pay about $61 million for the Boston Stock Exchange.

"I think the overall consolidation game within the U.S. exchange market will continue following the trend of 2007 and I would be surprised if any of the regional exchanges remain independent by the end of 2008," said Sang Lee, managing partner of Aite Group in Boston.

Thursday's deal is expected to close in the third quarter of 2008 and to boost NYSE Euronext's 2009 earnings. The transaction has to be approved by Amex members and regulators.

The deal comes a decade after Amex's doomed tie-up with the National Association of Securities Dealers, or NASD, then-owner of Nasdaq, creating the Nasdaq-Amex Market Group. In 2004, Amex members bought out the NASD to regain control of the stock exchange.

Amex members will be entitled to receive extra shares of NYSE Euronext based on the net proceeds from the expected sale of Amex's lower Manhattan headquarters.

Management of both NYSE and Amex, which was known as the New York Curb Exchange until the 1920s, declined to say what price could be expected in the sale of the American Stock Exchange building, which is listed as a national historic landmark.

SAVINGS SEEN

NYSE Euronext said the deal will realize "annualized run rate cost synergies" of over $100 million within two years of closing.

Amex operating revenues for the year to December 31, 2007 were $178 million with a pre-tax net loss of $36 million for that period.

"It's a good deal for both parties," said Adam Sussman of consultants Tabb Group. "Any owner of Amex equity is probably just happy that they're getting paid.

"NYSE Euronext was doing a good job of attracting options and ETF business from the Amex. This acquisition just speeds up that process."

In a conference call, NYSE Euronext CEO Duncan Niederauer said the Amex acquisition will make NYSE Euronext the third-largest U.S. options marketplace.

Diego Perfumo, analyst at Equity Research Desk LLC, an advisory firm that specializes in exchanges, said Thursday's deal means NYSE Euronext is acquiring about 700 more stock listings in the s econd tier market.

Perfumo said these smaller and medium-size companies will give NYSE a starting point to compete with Nasdaq in the smaller-sized IPO market.

The NYSE intends to invite qualified Amex-listed issuers, of which there are more than 900, to transfer their listings to NYSE, or NYSE's Arca.

Lehman Brothers advised NYSE Euronext and Morgan Stanley advised Amex.

Bush and Bernanke back fiscal stimulus

President George W. Bush and Federal Reserve chairman Ben Bernanke on Thursday threw their weight behind calls for a fiscal stimulus of up to $150bn as stocks fell to their lowest levels since October 2006.

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White House officials said the president will sketch out the "principles" of a fiscal plan in a speech today. The centerpiece of the package will be tax rebates for individuals though Mr Bush is also expected to propose investment incentives for companies.

However, the prospect of a fiscal boost failed to reassure the stock market, which plunged on Thursday as housing starts dived, concerns about bond insuers intensified and the Philadelphia Fed survey of manufacturing conditions fell to recession levels. The S&P 500 fell 2.9 per cent to 1,333.25

Mr Bernanke, meanwhile, warned that business investment was "likely to slow in the coming months" as companies adjusted their spending plans in the light of the downturn.

He said nothing to challenge expectations that the US central bank would cut interest rates by at least 50 basis points at its policy meeting on January 30.

White House spokesman Tony Fratto told reporters "the president does believe that...some boost is necessary."

John Boehner, the top Republican in the House of Representatives, said Mr Bush was considering a package of between $100bn and $150bn.

The prospect of a bipartisan deal brightened as the White House agreed not to link its stimulus proposal to demands that the Bush tax cuts be made permanent.

Nancy Pelosi, the Democratic speaker of the House, indicated that Democrats could support investment incentives as part of a package.

Mr Bernanke told Congress that a well-designed and swiftly implemented stimulus "could be helpful". He said: "Fiscal and monetary stimulus together may provide broader support for the economy than monetary policy actions alone."

The Fed chairman said a stimulus plan of $50bn-$150bn would be "reasonable" adding that the right stimulus plan would have a "measureable" effect on growth.

However, Mr Bernanke warned that a stimulus plan that kicked in too late or worsened the structural budget deficit could be "quite counterproductive."

He told Congress that making the Bush tax cuts permanent would not be the most effective way to deliver a stimulus and suggested the tax cuts should instead be considered seperately on their long term merits.

Treasury Secretary Hank Paulson - who sees Mr Bernanke regularly - has reportedly been pushing a similar line within the administration.

Mr Bernanke endorsed the view - associated with prominent Democrats - that targeting relief at low to middle-income people would deliver the most "bang for the buck".

But he said that spending on green technologies - another idea popular with Democrats - would not be effective as a stimulus.

Mr Bernanke said "we are not currently forecasting recession". But he hinted that Fed officials would cut their growth forecasts on January 30.

"We believe we will see below-trend growth certainly in 2008 and probably the first half of 2009 as well," he said.

The Fed chief said high oil prices were a "real bane" for the economy, because they added to the risks to both growth and inflation.

US stocks sink amid recession fears

US stocks sank to their lowest since October 2006 on fears that a contraction in US manufacturing may tip the economy into recession.

Equities slumped after Federal Reserve chairman Ben Bernanke's endorsement of the need for a fiscal stimulus package underscored investors' concerns that the US economy is facing a sharp slowdown.

Bond insurers plummeted after Moody's put Ambac Financial on review for possible downgrade, adding to worries about this credit market linchpin. Meanwhile, Merrill Lynch triggered a slide in banking stocks after the brokerage slumped to a $9.8bn quarterly loss.

The S&P 500 fell 2.9 per cent to 1,333.25, hitting its lowest level since the aftermath of Hurricane Katrina. The Dow Jones Industrial Average gave up 307 points, to close 2.5 per cent lower at 12,159.21.

The Nasdaq Composite fell 2 per cent to 2,346.90 leaving the tech index 17.9 per cent below its October peak, on the verge of a bear market. Small cap stocks have already passed that marker, with the Russell 2000 now 20.5 per cent from its peak last July, after posting decline of 2.8 per cent to 680.57 on Thursday.

The CBOE Vix index - Wall Street's so-called fear barometer - shot up 16.6 per cent to 28.42, its highest since the end of November.

Stocks went into a spin after the Philadelphia Federal Reserve's regional manufacturing index contracted sharply. The report added to concerns that US manufacturers are experiencing a marked slowdown, coming soon after the Institute for Supply Management's manufacturing index also weakened decisively.

"The manufacturing collapse in the Philly index today was a bad number," Jim Paulsen, chief investment strategist at Wells Capital Management, said. "Pretty much everything about the survey was bad."

Echoing these problems Harley Davidson shed 6.8 per cent to $36.95 after Citigroup told investors to sell the motorcycle manufacturer because it expects US retail sales to decline 10-12 per cent in the fourth-quarter.

Traders were not reassured by Ben Bernanke's Congressional testimony, where he pledged his support for a quickly implemented fiscal stimulus package but cautioned against widening the US budget deficit. His comments came as the White House confirmed that President Bush believes some kind of fiscal boost is necessary but did not provide details.

The real-estate sector showed no sign of improving as housing starts fell 14 per cent to 1.006m units last month, the lowest since May 1991. Meanwhile building permits fell 8.1 per cent in December, capping their worst annual decline since 1974.

"Housing starts and building permits collapsed," said TJ Marta, fixed-income strategist at RBC Capital Markets. "These figures point to a continued contraction in residential investment that will act as a drag on gross domestic product throughout 2008."

Better news on the employment front was quickly forgotten on Thursday amid the gloomy outlook for the US economy. Initial jobless claims fell 21,000 to 301,000, their lowest since September.

Corporate news was led by Merrill Lynch, which wrote down $16.7bn of credit assets and fell to a $9.8bn fourth-quarter loss, much worse than analysts had predicted.

Merrill's shares dropped 10.2 per cent to $49.45. The S&P investment banking index slumped 5.4 per cent.

Monoline insurers plunged after Moody's Investors Service put Ambac Financial on watch for possible downgrade.

Ambac's shares slumped 51.9 per cent to $6.24 while MBIA (NYSE:MBI), a rival insurer, fell 31.2 per cent to $9.22

Downgrades of bond insurers could have repercussions for the credit markets which depend on their triple-A ratings to guarantee bonds of less credit-worthy companies.

Commodity producers continued in free-fall after UBS initiated coverage of Monsanto (NYSE:MON) with a neutral rating and said the agribusiness could miss expectations for the second quarter. The shares fell 11.6 per cent to $99.61.

Fertilizer producers were also heavily sold after an analyst at Morgan Stanley raised concerns about potash inventories. Mosaic, lost 11.7 per cent to $81 and Potash (NYSE:POT) fell 10.7 per cent to $120.24.

Thursday's falls leave the S&P down 9.2 per cent for the 2008 while the Dow has given up 8.3 per cent and the Nasdaq 11.5 per cent. The speed of these falls has surprised some analysts who believe the Fed may yet step in to cut interest rates, ahead of its late January meeting.

"I do think people - even bears - are getting a little hesitant here by the speed in which this has come down, and therefore how aggressive the Fed might be," Mr Paulsen said.

Recession fear sends Wall St. reeling...again

NEW YORK (Reuters) -Stocks fell on Thursday, with the benchmark S&P 500 plummeting to a 15-month low, as news of a plunge in regional factory activity and a hefty loss at Merrill Lynch further clouded an increasingly dire view of the economy.

Federal Reserve Chairman Ben Bernanke echoed the bleak assessment of the economy in comments to lawmakers, reiterating that the Fed was ready to act aggressively and throwing his support behind other efforts to counter the risk of recession.

In one of the strongest signals yet that the economy is at high risk of contracting, the Philadelphia Federal Reserve Bank said mid-Atlantic factory activity has slowed much more than expected to levels that typically signal recession.

That extinguished Wall Street's early attempt at a rally, with shares of companies most sensitive to the economy's ups and downs suffering the most. Small-cap stocks fell into bear market territory, while at the opposite extreme, megacap General Electric (GE.N) dropped almost 4 percent ahead of its profit report early Friday.

Financials were battered after Merrill Lynch & Co Inc (MER.N) reported about $16 billion in mortgage-related write-downs and adjustments in the worst quarter in the company's history. Merrill shares dropped 10.2 percent to $49.45, while the S&P financial index (.GSPF) fell to its lowest in four-and-a-half years.

"Fear and pessimism is really beginning to dominate Wall Street," said Eric Kuby, chief investment officer at North Star Investment Management Corp in Chicago.

"More data showed weakness in the economy, and Merrill Lynch took a write-down the size of which, until recently, would have seemed unfathomable."

The Dow Jones industrial average (.DJI) fell 306.95 points, or 2.46 percent, to close at 12,159.21, down more than 1,000 points since the beginning of 2008.

The Standard & Poor's 500 Index (.SPX) was down 39.95 points, or 2.91 percent, at 1,333.25. The Nasdaq Composite Index (.IXIC) was down 47.69 points, or 1.99 percent, at 2,346.90.

The biggest bloodletting came among bond insurers, with

Ambac Financial Group Inc's (ABK.N) shares plunging 51.9 percent to $6.24 after Moody's Investors Service said it may cut the company's debt ratings, raising fresh questions about its ability to stay in business. Rival MBIA's (MBI.N) shares fell 31.2 percent to $9.22.

The Russell 2000 index (.RUT) dropped to a level indicating that small-cap stocks have crossed the threshold of what is considered a bear market. The index was down 20.5 percent from its record close in mid-July.

Not even indications from the Fed's Bernanke that the central bank was ready to deliver big interest-rate cuts could staunch the bleeding.

"Everyone is waiting for the Fed to solve the problem, so when Bernanke starts pointing out that it needs more than the Fed, that really highlights how difficult things are," Kuby said.

Investors were also hit with more bad news on housing as a government report showed that groundbreaking on new homes last month slumped to the slowest pace since 1991, while building permits sank to their lowest since 1993.

Fears that a U.S. recession may lie ahead have roiled global stock markets in recent weeks. A Reuters poll of 250 economists from the Group of Seven major developed economies on Thursday said the United States now faces a 45 percent chance of recession.

Energy shares fell, with Exxon Mobil (XOM.N) down 3 percent at $83.91 as the price of oil slipped 0.9 percent.

Pharmaceutical shares also ranked among the S&P 500's top decliners. Merck & Co Inc (MRK.N) and Schering-Plough Corp (SGP.N) were hurt by problems in a clinical trial of their shared cholesterol-fighting drug, Vytorin. Merck ended down almost 6 percent at $54.87 on the NYSE and was the second-heaviest weight on the blue-chip Dow average. Schering fell 8 percent to $21.62.

Adobe Systems (ADBE.O) fell 5.7 percent to $35.55 on the Nasdaq, after Adobe's stock was downgraded by UBS.

General Electric shares fell $1.35, or nearly 4 percent, to $33.21 on the NYSE.

United Technologies (UTX.N) fell 4.2 percent to $68.09 and 3M (MMM.N) dropped 3 percent to $74.96.

Trading was heavy on the NYSE, with about 2.17 billion shares changing hands, above last year's estimated daily average of roughly 1.9 billion, while on the Nasdaq, about 2.79 billion shares traded, ahead of last year's daily average of 2.17 billion.

Declining stocks outnumbered advancing ones by a ratio of more than 5 to 1 on the NYSE and by about 3 to 1 on Nasdaq.

FTSE slides after sentiment turns sour

British Land bucked the trend as the London market failed to keep early gains.

Shares in the property company advanced 5.2 per cent to 968p after Morgan Stanley (AMEX:MWD) upgraded the stock along with Segro, up 5.4 per cent to 499p and Brixton, 5.9 per cent higher at 323¾p, in a sector review.

"We expect UK property to climb by at least 20 per cent in the first six months of 2008 as the Bank of England is forced to cut UK base rates by around 100 basis points in an attempt to avert a recession," analyst Martin Allen said.

However, Mr Allen warned that once the rally ran its course, the UK property sector could halve in value in the following 18 months.

In the wider market, it was another depressing session, after US bank Merrill Lynch announced a bigger-than-feared subprime-related writedown.

The FTSE 100, which recrossed the 6,000 level in morning trading, eventually closed 40.5 points, or 0.7 per cent, lower at 5,902.4. It was dragged down by another poor performance from the mining sector. Worries that a recession in the US would affect demand for metals saw Vedanta Resources fall 6.6 per cent to £17.60, while Kazakhmys shed 5.2 per cent to £11.31, and Xstrata lost 4 per cent to £30.97.

On a brighter note, Scottish & Newcastle rose 5.4 per cent to 765p after the brewer confirmed reports on FT Alphaville that it would talk to unsolicited suitors Carlsberg and Heineken about a potential offer priced at the 800p a share level that S&N had set for talks. Associated British Foodsjumped 8.1 per cent to 838p as short sellers bought back positions after a better than expected trading statement.

Marks & Spencer advanced 3.2 per cent to 399¼p after Martha Lane Fox, a non-executive director, bought 13,000 shares at 395p.

In the insurance sector, Prudential eased 1.3 per cent to 633½p on rumours that results were being guided lower, while Legal & General improved 0.6 per cent to 128p after Andrew Crean, Citigroup's insurance analyst, reiterated his "buy" rating and 155p target price.

British Energy drifted 3.6 per cent lower to 520p on worries that a £9bn windfall tax could be slapped on UK utility companies.

European stocks slide as banks weigh

Tech stocks staged a comeback on Thursday after a punishing session on Wednesday, boosted by news that Americans are still buying computers in their droves.

The sector has tumbled this year as fears of a US recession cool sentiment towards consumer-driven stocks. But Europe's tech companies received a lift after a report showed that US computer sales rose 8.8 per cent in the last quarter.

Infineon (NYSE:IFX), the semiconductor maker, more than made up for its losses the previous day, jumping 5.1 per cent to EU6.77. The price of D-Ram chips rose 5 per cent overnight, helping support the company's battered shares.

Its Franco-Italian rival STMicroelectronics (NYSE:STM) rose 2.9 per cent to EU8.43 and Dutch chip manufacturing equipment maker ASML gained 3.5 per cent to EU17.80.

"ASML's stock is pricing in a very gloomy scenario. This means for investors with a strong stomach . . . this is a good entry point," said Didier Scemama at ABN Amro, who wrote a cautiously positive note on the sector. After a brutal few days for European equities, bargain-hunters helped lift the wider market in morning trade. But it reversed gear in late afternoon after data showed US manufacturing sharply contracting, and Merrill Lynch announced a bigger-than-feared subprime-related writedown.

The FTSE Eurofirst 300 closed 0.6 per cent lower at 1,374.36, Frankfurt's Xetra Dax lost 0.8 per cent to 7413.53 and the CAC 40 in Paris fell 1.3 per cent to 5,157.09.

Banks swung lower after Merrill Lynch said it lost almost $10bn in the fourth quarter. Commerzbank continued its bad run with a 3.6 per cent drop to EU21.90. UBS fell 2.7 per cent to SFr45.50 and France's Société Générale lost 2 per cent to EU93.00.

French companies had a tough session, with its alcohol-makers suffering big losses after Rémy Cointreau said its pre-Christmas sales unexpectedly stagnated. The cognac-maker's shares sank 11.1 per cent to EU38.73, dragging bigger rival Pernod Ricard down in its wake. The world's second-biggest alcohol maker lost 6.1 per cent to EU66.55.

"People expected much stronger sales of cognac. It's not that you, me, or Americans are drinking less cognac and other spirits, but wholesalers in the US are destocking because they are cautious about the future levels of consumption," said Severim Ble at Fortis.

But it wasn't all bad news for food and drink companies. Dutch supermarkets group Super De Boer said consumer spending was strong over Christmas and it had seen no signs of a consumer slowdown.

Super De Boer shares gained 4.1 per cent to EU2.81, while larger domestic rival Ahold climbed 4.4 per cent to EU8.14. Deutsche Bank upgraded Ahold from "sell" to "hold". While remaining pessimistic about the company's US venture, the Stop & Shop supermarket chain, Deutsche analyst Ingrid Azoulay said its shares had been oversold.

Belgian supermarket operator Delhaize, which makes most of its revenues in the US, climbed 1.7 per cent to EU50.27 after its drop in fourth-quarter sales was no worse than expected.

French engineering group Alstom was another winner, up 3.1 per cent to EU132.55 after reporting better-than-expected, third-quarter sales, up 20 per cent, and confirming its forecasts for its full financial year. The company, which builds power stations and railways, said the third quarter included new orders of EU4.7bn for its Power Systems division. The sector welcomed the results: Sweden's Atlas Copcorose 3.3 per cent to SKr79.50. Truckmaker Scania was up 1.6 per cent to SKr131.

CORRECTED: Market gains after claims data, tech advance

NEW YORK (Reuters) - Stocks edged higher on Thursday as data showing a drop in weekly jobless claims eased worries on the economy and investors bought beaten-down technology shares.

Limiting gains were declines in financial shares after a larger-than-expected loss by Merrill Lynch & Co Inc.

Shares of Microsoft Corp rose 1.1 percent to $33.59 after brokerage Goldman Sachs added the software maker's stock to its conviction buy list and said it expected a solid quarter for the company on strong growth in personal computers.

Jobless claims fell unexpectedly last week, and analysts said the data may have eased some U.S. recession fears. The fears have grown after signs of softness in employment and retail sales and some major corporations have reported weaker-than-expected financial results.

The Dow Jones industrial average was up 30.32 points, or 0.24 percent, at 12,496.48. The Standard & Poor's 500 Index

was up 1.70 points, or 0.12 percent, at 1,374.90. The Nasdaq Composite Index was up 14.23 points, or 0.59 percent, at 2,408.82.

Investors also were hopeful Federal Reserve Chairman Ben Bernanke might signal further interest rate cuts when he speaks later on Thursday.

Merrill, the world's largest brokerage, reported a quarterly net loss of $9.8 billion and write-downs and adjustments totaling about $16 billion. Its shares fell 3 percent to $52.95. The news underscored worries about the impact of mortgage problems on the financial sector and economy.

European stocks bounce back

European stocks staged a rebound on Thursday as investors shrugged off another subprime shock from the US, while engineering groups welcomed strong quarterly numbers from Alstom.

US markets opened higher, as bargain hunting in the beaten-down technology sector helped offset the effect of weakness from US bank Merrill Lynch. Merrill announced that it took $11.5bn in writedowns on credit and subprime exposure and reported a much worse than expected quarterly loss.

By mid afternoon in London, the FTSE Eurofirst 300 was up 0.8 per cent to 1,393.72, Frankfurt's Xetra Dax added 0.4 per cent to 7,501.22, the CAC 40 in Paris gained 0.4 per cent to 5,248.12 and London's FTSE 100 climbed 0.8 per cent to 5,991.5.

French engineering group Alstom rose 5.3 per cent to EU135.37 after reporting better-than-expected third-quarter sales, up 20 per cent, and confirming its forecasts for its full financial year.

The company, which builds power stations and railways, said the third quarter included new orders of EU4.7bn for its Power Systems division.

The sector welcomed the results and Sweden's Atlas Copco climbed 4.6 per cent to SKr80.50, and Spanish wind turbine manufacturer Gamesa rallied 6.6 per cent to EU26.91.

Retailers received some welcome cheer after Dutch supermarkets group Super De Boer said consumer spending was strong over Christmas and that it had seen no signs of a consumer slowdown. The company reported a 4 per cent rise in like-for-like sales in its fourth quarter.

Super De Boer rose 7.4 per cent to EU2.90, while larger domestic rival Ahold climbed 4.7 per cent to EU8.17.

Belgian supermarket operator Delhaize, which makes most of its revenues in the US, climbed 3.2 per cent to EU51.01 after its drop in fourth-quarter sales was no worse than expected. Like-for-like, the group reported 3.7 per cent sales growth in the US, and 1.3 per cent in Belgium.

Technology stocks bounced after Wednesday's losses, with Infineon (NYSE:IFX), the German chipmaker, recovering after US rival Intel reported quarterly profits that lagged expectations. Infineon climbed 7.6 per cent to EU6.93, Franco-Italian rival STMicroelectronics (NYSE:STM) rose 4.5 per cent to EU8.56 and Dutch chip manufacturing equipment maker ASML (NASDAQ:ASML) gained 4.7 per cent to EU18.15.

Alcatel (NYSE:ALA)-Lucent, the telecoms equipment maker, rose 4.7 per cent to EU4.74 after it said it had won a Brazilian network services contract.

Novartis, the Swiss drugmaker, missed market forecasts with its fourth-quarter profit due to higher research and development costs and restructuring charges. Even though the company announced a SFr10bn share buyback, the shares fell 3.1 per cent to SFr59.35.

"The numbers were complicated by one-off charges, but still missed on an underlying basis and uncertainty remains about recovery," said Alexandra Hauber at Bear Stearns.

Makers of alcoholic beverages fell after France's Remy Cointreau reported weaker-than-expected sales growth in the pre-Christmas period.

Remy shares were down 11.2 per cent to EU38.67, while domestic rival Pernod Ricard lost 5.5 per cent to EU67.03, and Britain's Diageo shed 2.6 per cent to 992p.

FTSE cheers up on fresh bid news

London equities moved either side of the flatline in volatile trade on Thursday. A solid start to US trade and fresh bid activity in the brewing sector provided a measure of cheer in the afternoon.

The FTSE 100 was 0.7 per cent higher at 5,981.1 as Wall Street markets shrugged off news of big sub-prime writedowns at Merril Lynch. The Dow Jones Industrial Average rose 0.3 per cent to 12,502.0, a rise 27 points.

Scottish & Newcastle confirmed reports on FT Alphaville that its determined, unsolicited suitors Carlsberg and Heineken lodged a potential offer priced at the 800p per share level S&N set for talks.

The brewer of Foster's lager bitter and Newcastle Brown Ale said the possible bid depended on certain conditions, including due diligence, and asked the Takeover Panel for a "short extension" to Monday's deadline for a full approach. Shares in S&N rose 5.6 per cent to 766p.

But their was lingering caution across dealing rooms after Merrill Lynch said writedowns for sub-prime, CDO and related activities totalled $11.5bn in the fourth quarter, resulting in a net loss for the quarter of $8.6bn, much worse than consensus forecasts. The news re-stoked fears of a wider slowdown over the Atlantic and was strong enough to spook UK investors.

Mining stocks dominated the downside on fears for the global growth which drives demand for the metals produced by the sector. Vedanta lost 5.7 per cent to £17.17, Anglo American was 4.9 per cent lower at £25.79 and Kazakhmys fell 4.9 per cent to £11.35,

Home Retail Group offered further insight into the mixed Christmas on the high street as it reported a 0.2 per cent fall in like-for-like sales at its Argos shopping chain. The picture was worse at its Homebase home improvement stores, where like-for-like sales fell 6.3 per cent. But Home Retail said it expected annual profits to reach the top end of forecasts, helping its shares rise 0.5 per cent to 272¼p.

"Despite the nervousness about companies trading in "big-ticket" spending areas, Argos like-for-like sales and gross margins in Q3 are no worse than about flat, which is what the market hoped for, but is almost a miracle in the current climate," said Nick Bubb, analyst at Pali International.

There was a better showing at Primark, the fashion outlet owned by Associated British Foods. Although the company failed to give like-for-like sales data, it said total sales, which includes new retail space, rose 26 per cent, beating forecasts.

ABF said group revenue in the 16 weeks to January 16 rose 13 per cent, helping its shares 6.7 per cent higher to 827p, one of the biggest risers on the FTSE 100.

Music, books and DVD retailer HMV also made progress, rising 8.9 per cent to 109¾p, after a 14.1 per cent rise in festive like-for-like sales at its core UK and Ireland business. It predicted annual profits would reach the top end of forecasts.

Kesa Electricals moved 8.6 per cent higher to 199¼p as the owner of the Comet chain reported a 14.3 per cent increase in sales over Christmas.

Back in London, Morgan Stanley helped foster further gains for the property sector as it predicted a "short, sharp counter-trend rally" in the sector.

"We expect UK property shares to rally by at least 20 per cent in first half 2008 as the Bank of England is forced to cut UK base rates by around 100 basis points in an attempt to avert a recession," wrote analyst Martin Allen.

He upped his rating on British Land to "overweight" from "underweight", helping the stock rise 6.7 per cent to 982p. He also upgraded his stance on Brixton, up 7.9 per cent to 329.8p, and Hammerson, 4.5 per cent stronger at £10.68

Brewer SABMiller fell 1 per cent to £12.33 after it reported growth in lager volumes of 4 per cent, at the bottom of forecast ranges.

FTSE falls as US slowdown fears return

The FTSE 100 fell again on Thursday as more big write downs in the US banking sector blocked momentum from retailers after better high street newsflow.

Having rallied earlier in the day, the FTSE was knocked just after mid-day by yet more bad news from the US banking sector.

Merrill Lynch said writedowns for sub-prime, CDO and related activities totalled $11.5bn in the fourth quarter, resulting in a net loss for the quarter of $8.6bn, much worse than consensus forecasts. The news re-stoked fears of a wider slowdown over the Atlantic and was strong enough to spook UK investors.

Just after mid-day, the FTSE 100 was back under the flatline, losing 0.3 per cent to 5,926.9, a loss of 16 points.

Mining stocks dominated the downside on fears for the global growth which drives demand for the metals produced by the sector. Vedanta lost 5.7 per cent to £17.17, Anglo American was 4.9 per cent lower at £25.79 and Kazakhmys fell 4.9 per cent to £11.35,

Home Retail Group offered further insight into the mixed Christmas on the high street as it reported a 0.2 per cent fall in like-for-like sales at its Argos shopping chain. The picture was worse at its Homebase home improvement stores, where like-for-like sales fell 6.3 per cent. But Home Retail said it expected annual profits to reach the top end of forecasts, helping its shares rise 0.5 per cent to 272¼p.

"Despite the nervousness about companies trading in "big-ticket" spending areas, Argos like-for-like sales and gross margins in Q3 are no worse than about flat, which is what the market hoped for, but is almost a miracle in the current climate," said Nick Bubb, analyst at Pali International.

There was a better showing at Primark, the fashion outlet owned by Associated British Foods. Although the company failed to give like-for-like sales data, it said total sales, which includes new retail space, rose 26 per cent, beating forecasts.

ABF said group revenue in the 16 weeks to January 16 rose 13 per cent, helping its shares 6.7 per cent higher to 827p, one of the biggest risers on the FTSE 100.

Music, books and DVD retailer HMV also made progress, rising 8.9 per cent to 109¾p, after a 14.1 per cent rise in festive like-for-like sales at its core UK and Ireland business. It predicted annual profits would reach the top end of forecasts.

Kesa Electricals moved 8.6 per cent higher to 199¼p as the owner of the Comet chain reported a 14.3 per cent increase in sales over Christmas.

Back in London, Morgan Stanley helped foster further gains for the property sector as it predicted a "short, sharp counter-trend rally" in the sector.

"We expect UK property shares to rally by at least 20 per cent in first half 2008 as the Bank of England is forced to cut UK base rates by around 100 basis points in an attempt to avert a recession," wrote analyst Martin Allen.

He upped his rating on British Land to "overweight" from "underweight", helping the stock rise 6.7 per cent to 982p. He also upgraded his stance on Brixton, up 7.9 per cent to 329.8p, and Hammerson, 4.5 per cent stronger at £10.68

Brewer SABMiller fell 1 per cent to £12.33 after it reported growth in lager volumes of 4 per cent, at the bottom of forecast ranges.

US tech stocks sell off as Intel disappoints

Wall Street stocks were volatile on Wednesday after Intel (NASDAQ:INTC)'s disappointing figures drained more confidence from the technology sector.

Materials and energy companies suffered the worst of the selling pressure as crude oil dipped below $90 a barrel with traders betting that a weakened US economy would cause demand for commodities to slump.

Financial stocks bounced back after JPMorgan attracted buyers as it avoided severe subprime-related losses. However Ambac Financial, the bond insurer, fell sharply after it slashed its dividend to shore up capital reserves.

Heavily sold retail names also rallied as discount chains found buyers on hopes that they would better withstand a downturn.

In mid-afternoon the S&P 500 was down only 0.2 per cent at 1,378.89, having earlier fallen 1.2 per cent and crossed a key technical support level - last year's lowest close of 1,370 set on March 5.

The tech-heavy Nasdaq Composite fell 0.6 per cent to 2,3403.47 while the Dow Jones Industrial Average rose 0.2 per cent to 12,524.12.

The Russell 2000 small-cap index also advanced in volatile trading, up 0.8 per cent at 703.31 but remains 17.8 per cent below its July peak.

Large-cap technology stocks sold off after Intel's quarterly profits lagged Wall Street's expectations and its fiscal first quarter revenue outlook disappointed analysts. The shares fell 11.9 per cent to $20 as brokerages cut price targets.

Expectations of bumper earnings growth made tech a stand-out sector in 2007 but the Nasdaq Composite has fallen 9.8 per cent this year with the PHLX semiconductor sector index down 12.2 per cent.

Fourth quarter earnings are expected to hold up well, averaging gains of more than 20 per cent. But Todd Salamone, vice-president of research at Schaeffer's Investment Research, warned that the bulls could set the sector up for a fall.

He said: "The tech sector is expected to have strong earnings growth so it may have more trouble beating estimates."

BEA Systems (NASDAQ:BEAS) was a bright spot, soaring 18.9 per cent to $18.52 after Oracle (NASDAQ:ORCL) agreed to buy the business software company for $8.5bn. Oracle's shares rose 2.5 per cent to $21.84.

The financial sector rebounded after JPMorgan's results revealed much less exposure to subprime damage than some of its rivals. Fourth quarter earnings fell 34 per cent to $2.97bn, worse than expected, as the bank took a $1.3bn writedown on mortgage investments and boosted loan loss provision.

However JPMorgan's problems were small compared with the $18.1bn in writedowns that Citigroup (NYSE:C) revealed on Tuesday. Citi reported a $9.8bn fourth quarter loss and revealed a sharp rise in consumer credit costs. JPMorgan's shares rose 7.1 per cent to $41.92 but Citi fell 2.7 per cent to $26.21. Merrill Lynch, expected to reveal heavy losses on Thursday, rose 4 per cent to $55.15.

Also reporting on Wednesday, Wells Fargo, up 3 per cent at $27.28, said fourth quarter profit fell 38 per cent, in line with expectations.

However, shares in Ambac Financialplunged 33.9 per cent to $13.98 after the bond insurer said it would raise $1bn in new capital and slash its dividend to help preserve its triple-A rating. Ambac also said it expects to take a $5.4bn pre-tax writedown for the fourth quarter. MBIA (NYSE:MBI), a rival, fell 13.6 per cent to $13.86.

Investors took profits in the agribusiness sector, which escaped the worst of the new year sell-off on hopes that the global food price boom would offset a slowing US economy. Monsanto (NYSE:MON) fell 7 per cent to $114.74 and Mosaiclost 7.8 per cent to $93.33.

Energy and materials were the worst performing of the S&P 10 leading sectors as traders priced in waning US demand. National Oilwell Varco (NYSE:NOV) gave up 5.5 per cent to $64.59 while Freeport-McMoRan Copper & Gold fell 6.5 per cent to $88.64.

A comparatively modest increase in consumer price inflation in December, which rose 0.3 per cent compared to expectations of a 0.2 per cent uptick, may leave the door open for the Fed to cut interest rates aggressively, as the futures market now expects.

David Greenlaw, economist at Morgan Stanley, said: "The Fed is now clearly downplaying the emphasis on inflation while raising their focus on the downside risks".

The Federal Reserve's Beige Book regional survey showed the US economy continued to grow at the end of last year.

European stocks lower on growth fears

European equity markets closed off session lows on Wednesday, but small gains in the US during morning trade were not enough to take them higher.

The FTSE Eurofirst 300 closed down 0.9 per cent at 1,383.2. At its worst level of the session, the pan-European benchmark had been down 1.7 per cent at 1,372.15.

Frankfurt's Xetra Dax fell 1.3 per cent to 7,471.6, the CAC 40 in Paris was 0.5 per cent weaker at 5,225.4 and London's FTSE 100 was down 1.4 per cent at 5,942.9.

Reports carried by Bloomberg that the European Central Bank was considering a downward revision to eurozone growth estimates for 2008 added to the gloom.

Yves Merch, a member of the central bank's governing council, was quoted by the news agency as saying there could be "a moderation of growth inside Europe" adding that the bank should remain flexible on interest rates.

ASML (NASDAQ:ASML), the Dutch maker of memory chip manufacturing equipment, failed to be saved by its surprise rise in fourth-quarter profit, shedding 6.9 per cent to EU17.20 - one of the Eurofirst's biggest percentage losers.

Chip stocks were weaker across the board after Intel (NASDAQ:INTC) of the US warned after the Wall Street close on Tuesday that first-quarter revenue would be lower than analysts' estimates.

Infineon (NYSE:IFX), the German chipmaker, fell 3.7 per cent to EU6.44, while Franco-Italian group STMicroelectronics (NYSE:STM) lost 0.7 per cent to EU8.192.

Other high-growth stocks, particularly the alternative energy sector, fell as investors shied away from risk and favoured defensive drugs stocks.

Q-Cells, the German solar panel maker, fell 6.4 per cent to EU72.60 as Société Générale downgraded the stock to "sell" from "buy" and cut its target price to EU66 from EU98.

Analyst Didier Laurens said the stocks were currently overvalued, having been among the best performers over 2007. He added that there was also risk over a silicon shortage.

Norwegian solar panel maker Renewable Energy fell 5.5 per cent to NKr196.50, while Danish wind turbine producer Vestas Wind Systems shed 6.4 per cent to DKr429.

Dwindling opportunities for takeovers of Portuguese bank Millennium BCP following the appointment of a new chief executive were highlighted by brokers at UBS.

"The arrival (of new CEO Carlos Santos Ferreira) makes it unlikely BCP chooses to sell out anytime, removing the speculative element from BCP's stock," UBS said in a note.

Shares in BCP were down 6.8 per cent to EU2.48

Wall St extends sharp losses

Wall Street stocks retreated again Wednesday, extending Tuesday's sharp losses, after Intel's earnings miss sapped confidence in the technology sector.

Financial stocks were mixed, with JPMorgan attracting buyers after its avoided severe subprime-related losses but as Ambac Financial, the bond insurer, said it would issue new equity to shore up its capital reserves.

Less than an hour after the opening bell, the S&P 500 was down 0.6 per cent 1373.20, the Dow Jones Industrial Average fell 0.3 per cent to 12,463.15 but the tech-heavy Nasdaq fell 1.4 per cent to 2,384.54.

Tuesday's sharp sell-off on the S&P has left the index threatening some key support levels.

Traders will be watching to see if the index breaches a closing low of 1370.60 set on March 5th last year, when subprime mortgage problems first became a big worry for traders.

Technology shares sold off after Intel's quarterly results missed Wall Street's expectations and its fiscal first quarter outlook also disappointed analysts.

The shares fell 11.2 per cent to $20.15 after several brokerages cut their price targets on the stock.

Intel's earnings disappointment sapped confidence in a broad range of tech stocks amid heightened concerns about growth prospects in the sector.

The Nasdaq Composite has fallen 9.5 per cent this year while the PHLX semiconductor sector index is down 15 per cent.

Although fourth quarter earnings in technology are likely to hold up well, posting an expected increase of more than 20 per cent, Todd Salamone, vice president of research at Schaeffer's Investment Research, cautioned that this bullishness could set the sector up for a fall.

"The tech sector is expected to have strong earnings growth so it may have more trouble beating estimates," he said.

BEA Systems's shares were a lone bright spot in the sector on Wednesday, soaring 19.3 per cent o $18.59 after Oracle agreed to buy the company for $8.5bn. However, Oracle's shares slipped 0.3 per cent to $21.25 after it was forced to raise its offer price.

The financial sector was mixed after JP Morgan's quaterly results revealed much less exposure to subprime damage than some of its competitors.

Fourth quarter earnings fell by 34 per cent to $2.97bn, worse than expected, after the bank took a $1.3bn writedown on its mortgage investments and boosted its loan loss provision by $2.54bn.

However JPMorgan's problems were small compared with the $18.1bn in writedowns revealed by Citigroup on Tuesday. Citi reported a $9.8bn fourth quarter loss and revealed a sharp increase in consumer credit costs.

JPMorgan's shares rose 3 per cent to $40.34, but Citigroup fell 2.6 per cent to $26.24.

Also reporting fourth-quarter earnings on Wednesday was Wells Fargo, up 1 per cent at $26.76, said fourth quarter profit fell for the first time in more than six years from $2.18bn to $1.36bn, in line with expectations.

Shares in Ambac Financial slumped 25 per cent to $15.93 after the troubled bond insurer said it would issue $1bn in equity and securities and slash its dividend. It also replaced its chief executive. MBIA, a rival, fell 8.5 per cent to $14.68.

Elsewhere, Boeing was in focus after it postponed the launch of its 787 Dreamliner aircraft until early 2009, instead of late 2008. The shares rose 0.2 per cent to $78.04 after falling 4.7 per cent on Tuesday amid reports of potential delays.

In economic news consumer price inflation rose 0.3 per cent in December compared to expectations of a 0.2 per cent increase.

Core prices, which strip out volatile food and energy inputs, rose 0.2 per cent, as expected. For the year CPI rose 4.1 per cent, while core prices were up 2.4 per cent.

The relatively modest monthly increase in consumer prices may leave the door open for the Fed to cut interest rates aggressively, as the market is demanding.

"While this is hardly good news for the Fed, it shouldn't come as too much of a surprise and thus does little to alter the message that Bernanke sent last week," David Greenlaw, economist at Morgan Stanley, said. "The Fed is now clearly downplaying the emphasis on inflation while raising their focus on the downside risks confronting the real economy."

The futures market has priced in at least a 50 basis point cut, with a 46 per cent chance of a 75bp cut by the end of this month.

Some analysts believe the Fed will ease rates in advance of its month-end meeting, but others suggest this would provide the market with a panic signal.

Asian equity markets suffered heavy falls on Wednesday with the Hang Seng closing 5.4 per cent lower, its worst day since September 2001. The Nikkei dropped 3.4 per cent.

European stocks recovered from early losses as Wall Street opened. The FTSE Eurofirst 300 index was down 0.2 per cent, the FTSE 100 fell 0.2 per cent while the Dax gave up 0.5 per cent in Germany.

Bond prices pared early gains on Wednesday with the yield on the two-year Treasury note rising at 2.50 per cent and the 10-year Treasury note yield up 1.5 basis points at 3.68 per cent.

The dollar was a fraction weaker against the euro at $1.4811 but fell 0.4 per cent against the pound to $1.9698 and slipped 0.2 per cent to Y106.56.

Gold prices shed $6.90 to $895.70 while crude oil prices slipped $0.75 to $91.15

European stocks pare sharp losses

European equity markets recovered from the worst of their early losses after after the major US indices opened higher.

By mid afternoon in London, the FTSE Eurofirst 300 was down 0.5 per cent at 1,388.97. At its worst level of the session, the pan-European benchmark had been down 1.7 per cent at 1,372.15.

Frankfurt's Xetra Dax fell 0.7 per cent to 7,516.91, the CAC 40 in Paris was flat at 5,250.95 and London's FTSE 100 was down 0.7 per cent at 5,984.2.

The recovery came in response to Wall Street's higher open, bouncing from Tuesday's sharp losses. JPMorgan, the New York bank rallied 4.6 per cent as it showed itself to be something of a rarity in the sector with its limited exposure to credit market losses.

ASML (NASDAQ:ASML), the Dutch maker of memory chip manufacturing equipment, failed to be saved by its surprise rise in fourth-quarter profit, shedding 8.9 per cent to EU16.83 - the Eurofirst's biggest percentage loser.

Chip stocks were weaker across the board after Intel (NASDAQ:INTC) of the US warned after the Wall Street close on Tuesday that first-quarter revenue would be lower than analysts' estimates.

Infineon (NYSE:IFX), the German chipmaker, fell 3.7 per cent to EU6.44, while Franco-Italian group STMicroelectronics (NYSE:STM) lost 0.4 per cent to EU8.22.

Other high-growth stocks, particularly the alternative energy sector, fell as investors shied away from risk and favoured defensive drugs stocks.

Q-Cells, the German solar panel maker, fell 7.5 per cent to EU72.26 as Société Générale downgraded the stock to "sell" from "buy" and cut its target price to EU66 from EU98.

SocGen also cut its rating on rival SolarWorld to "sell" from "hold" and lowered its price target to EU29 from EU45. SolarWorld shares fell 7.2 per cent to EU32.62.

Analyst Didier Laurens said the stocks were currently overvalued, having been among the best performers over 2007. He added that there was also risk over a silicon shortage.

Norwegian solar panel maker Renewable Energy fell 4.2 per cent to NKr199.50, while Danish wind turbine producer Vestas Wind Systems shed 3.9 per cent to DKr440.50.

Dwindling opportunities for takeovers of Portuguese bank Millennium BCP following the appointment of a new chief executive were highlighted by brokers at UBS.

"The arrival (of new CEO Carlos Santos Ferreira) makes it unlikely BCP chooses to sell out anytime, removing the speculative element from BCP's stock," UBS said in a note.

Shares in BCP were down 6 per cent to EU2.50.

FTSE 100 tumbles below 6,000

London equities tumbled on Wednesday after sharp losses on Wall Street and in Asia kept the focus firmly on the economy and the outlook for corporate earnings.

The blue-chip FTSE 100 was 1.2 per cent weaker at 5,951.2, below the 6,000 for the first time since August, when the crisis on world credit markets first came to the fore. The mid-cap FTSE 250 fell 1.8 per cent to 9,587.9.

Shares in the London Stock Exchange, the operator of the market itself, were the biggest fallers, down 8.3 per cent at £15.69. Stanford Bernstein started coverage of the stock with an "underperform" rating and a £16 price target, on worries about its exposure to equities and ongoing pricing pressure.

In the mining sector, dealing room rumour linked Vedanta Resources with bid interest in Canada's First Quantum Minerals, revealed on FT Alphaville's Markets Live. The reports indicated a potential offer price of C$120 (£60) per share, valuing the Aim-quoted company at £4bn. Vedanta's stock lost 4.6 per cent to £18.98.

Meanwhile, Rio Tinto said it set annual production records for iron ore, bauxite, alumina, aluminium, refined gold and refined copper in 2007.

"Against a background of record prices for many of our commodities and a strong outlook for demand in developing markets, we look forward with confidence," the company said.

However, Rio shares, along with its mining sector rivals, fell as industrial metals prices extended recent sharp losses on fears possible recession in the US would significantly dent demand.

Rio, currently resisting takeover moves by peer BHP Billiton, fell 4.2 per cent to £47.85. Xstrata shed 4.7 per cent to £32.59, Anglo American lost 3.6 per cent to £27.56 and Lonmin fell 6 per cent to £33.30.

Pub groups and other leisure stocks sufffered as the health of the consumer was addressed by a trading statement from mid-cap operator Punch Taverns.

The company said like-for-like sales at its core managed estate fell by 2.2 per cent in the 20 weeks to January 5, as last year's smoking ban in England and Wales coincided with declining consumer confidence.

Punch added that it remained cautious over the short-term outlook for the pub sector, but said long-term prospects were good.

Shares in Punch fell 7.6 per cent to 571p, dragging other stocks in the sector with it. FTSE 100-listed Enterprise Inns fell 4 per cent to 376¼p, while blue-chip rival Whitbread shed 4.3 per cent to £10.57. Mitchells & Butler fell 5.4 per cent to 366¾p.

Hotels group Intercontinental fell 4.1 per cent to 674½p, while smaller rival Millennium & Copthorne shed 4.9 per cent to 317½p after Citigroup cut its rating to "hold" from "buy".

Data from the Royal Institute of Chartered Surveyors showed that house prices fell in December at the fastest rate since the early 1990s when the UK was in recession.

Shares in housebuilder Taylor Wimpey suffered, despite reporting on Tuesday that it anticipated no big house price falls in Britain, and that full-year results would be in line with estimates.

Taylor Wimpey fell 4 per cent to 153p, Bovis Homes lost 5 per cent to 546½p, Persimmon shed 4.2 per cent to 686p and Barratt Development slid 2.8 per cent to 333½p. Rightmove, the online estate agent, fell more than 8 per cent to 367p.

Experian, the information services group, fell 5.1 per cent to 356p after reporting fourth quarter organic revenues were up only 2 per cent and that trading conditions were likely to remain tough. The company announced plans to cut costs and added that it continued to target double-digit earnings growth for the full-year.

Yen and Swiss franc soar against dollar

The dollar dropped to a record low against the Swiss franc and its weakest level in two and a half years against the yen on Wednesday as tumbling stock markets drove investors to the safety of low-yielding currencies.

Equities lost ground after weak US retail sales figures on Tuesday sparked fresh fears that a slowdown in the US would spill over into the global economy.

Analysts said rising risk aversion had prompted investors to abandon carry trades, in which low-yielding currencies such as the yen and Swiss franc are sold to finance the purchase of riskier, higher-yielding assets elsewhere.

"Risk aversion is the only story in town, perhaps combined with a bit of dollar weakness," said Adam Cole at RBC Capital Markets.

"So the dollar is the perfect currency to sell against the yen in this environment."

The dollar fell 0.6 per cent to Y106.10 against the yen, its weakest level since May 2005, and dropped 0.4 per cent to an an all-time low of SF1.0884 against the Swiss franc.

The dollar was flat against the euro at $1.4810, however, as the single currency also suffered against the rampant yen.

Indeed, the yen rose 0.5 per cent to Y157.15 against the euro, climbed 0.7 per cent to Y207.95 against the pound and gained 1.4 per cent to Y81.86 against the higher-yielding New Zealand dollar.

Meanwhile emerging market currencies - which have generally been resilient in the last few weeks despite negative US economic data and weakness in US stocks - also came under pressure.

Jens Nordvig at Goldman Sachs said the fact that emerging market equities suffered a sharp correction on Tuesday could signal that a downward shift in market expectations for growth outside the US had now started.

"With weakness in US stocks now clearly affecting global equity markets, including key emerging markets, we think some high-risk emerging market currencies are looking vulnerable," he said.

In particular, Mr Nordvig said, currencies which had been supported by equity inflows and which were not not supported by rising domestic interest rates, like the Turkish lira and Philippine peso, might be most at risk.

Indeed, the Turkish lira dropped 1.5 per cent to TL1.1720 against the dollar, while the Philippine peso fell 1.2 per cent to 40.75 pesos and the South African rand lost 1.3 per cent to R6.9163.

Elsewhere, the pound lost ground, easing 0.1 per cent to $1.9600 against the dollar and losing 0.2 per cent to £0.7554 against the euro.

The pound's fall was triggered by a survey from the Royal Institute of Chartered Surveyors that showed confidence in the UK property market had dropped its lowest level since the housing crash of the early 1990s.

However Adrian Schmidt at RBS said with 125 basis points of UK interest rates cuts already priced into the market this year, sterling already down 5 per cent on a trade-weighted basis the last month, and the market now heavily short sterling, there was less downside for the pound in the short run.

US recession fears hammer Asian stocks

Stock markets tumbled across Asia on Wednesday and the dollar fell to a 2½-year low against the yen amid heightened fears that the US is falling into a recession.

The onslaught of bad news out of one of Asia's most important trading partners hit markets hard. Bank shares suffered after Citigroup (NYSE:C) and Merrill Lynch said they need $21.1bn of fresh capital, while technology stocks slid on Intel (NASDAQ:INTC)'s cautious outlook for 2008.

The Nikkei 225 stock index shut at a 26-month slow, shedding 3.4 per cent to 13,504.51 with exporters hammered by a stronger yen, which traded at 106.32 against the dollar. Hong Kong shares plummeted 5.4 per cent to 24,450.85 - the worst single-day percentage fall since September 2001 - and Shanghai dropped 2.8 per cent to 5,290.606. India was down over 3 per cent. Commodity-based stocks weighed down the Australian market, which lost 2.5 per cent to 5,809.7. Jakarta shed 5 per cent.

Some of Japan's most successful companies that rely on the US for a large chunk of their earnings suffered badly amid signs American consumers are cutting back on spending. Honda (NYSE:HMC) dropped for the second day this week, losing 4.9 per cent to Y3,100, while larger rival Toyota (NYSE:TM) fell 4 per cent to Y5,310. Nintendo plummeted 8.5 per cent to Y53,800.

Chip-related stocks suffered after Intel presented disappointing fourth-quarter profits and a cautious outlook for 2008. Advantest (NYSE:ATE) dropped 4.2 per cent to Y2,600.

"Everyone is very pessimistic," said Mamoru Shimode, Japan chief equity strategist at Deutsche Securities. "There are also jitters about [Japan's] upcoming corporate earnings season where there are expectations for many downward revisions."

But Brandon Ginsberg, Managing Director at KBC Securities Japan, noted that the ratio of price earnings to growth in earnings is the lowest since 1974, meaning that what investors are paying for the growth rate is cheap.

Mitsubishi UFJ slid 4.7 per cent to Y953 following a report that indicated Japan's largest bank had some Y50bn in subprime-related losses, more than ten times its previous estimate. Mizuho shares sank 8.8 per cent to Y459,000.

It wasn't only Japanese banks hurting. HSBC, which makes about a third of its revenues in North America, dropped 4.5 per cent to HK$115.40. Property shares, which usually benefit on bad US news as that means potentially lower interest rates in the territory because of the Hong Kong dollar's peg to the US currency, also fell. Cheung Kong lost 4.8 per cent to HK$129.20.

Shares of mainland Chinese companies were not immune to the US gloom. CNOOC, the oil company, plummeted 8.4 per cent to HK$12.18. China Mobile dropped 4.6 per cent to HK$119.

In Australia, the mining company BHP Billiton (NYSE:BHP) lost 3.1 per cent to A$37.52 and its smaller rival and takeover target Rio Tinto dropped 3.0 per cent to A$122.96.

In Mumbai, the Sensex index had fallen 3.1 per cent to 19,615.52 by late afternoon, paced by Reliance Industries.

European shares slide, London FTSE 100 below 6,000 points

LONDON (AFP) - Europe's main stock markets extended losses in early trade on Wednesday amid widespread gloom over the US economy, with London's leading index below 6,000 points for the first time since mid-August.

London's FTSE 100 index of leading shares was down 1.30 percent at 5,947.00 points shortly after the open. Frankfurt's DAX 30 lost 1.00 percent to 7,491.07 points and in Paris the CAC 40 dropped 1.24 percent to 5,185.67.

The DJ Euro Stoxx 50 index of eurozone shares decreased 1.00 percent in value to stand at 4,099.56 points.

The European single currency stood at 1.4808 dollars.

European stock markets had suffered a major sell-off Tuesday -- with London closing down more than three percent -- in the face of gathering fears of recession in the United States and depressing corporate news, dealers said.

Heading the FTSE losers board early on Wednesday was Experian, the world's largest credit checking company, which slumped 5.33 percent to 355 pence.

It came as Experian said trading conditions were not expected to improve during its latest quarter owing to the squeeze on global credit.

Fears of a US recession also rattled Asian stocks Wednesday, while US stocks plummeted overnight after weak US retail sales data and a multibillion-dollar loss by banking giant Citigroup.

Credit flows worldwide have tightened because big banks have lost billions of dollars in mortgage-related investments, which has forced them to curtail lending and triggered efforts by central banks to boost liquidity.

Many analysts believe the housing and credit woes could destabilize the wider US economy, or even trigger a recession.

US recession fears sink Asian stocks

Stock markets tumbled across Asia on Wednesday and the dollar hit a 2½-year low against the yen amid heightened fears that the US is falling into a recession.

The onslaught of bad news out of one of Asia's most important trading partners hit markets hard. Bank shares suffered after Citigroup (NYSE:C) and Merrill Lynch said they need $21.1bn of fresh capital, while technology stocks slid on Intel (NASDAQ:INTC)'s cautious outlook for 2008.

The Nikkei 225 stock index shut at a 26-month slow, shedding 3.4 per cent to 13,504.51 with exporters hammered by a stronger yen, which traded at 106.32 against the dollar. Hong Kong shares plummeted 4.9 per cent to 24,571.12 and Shanghai dropped 2.8 per cent to 5,290.606. Commodity-based stocks weighed down the Australian market, which lost 2.5 per cent to 5,809.7. Jakarta shed 4.9 per cent.

Some of Japan's most successful companies who rely on the US for a large chunk of their earnings suffered badly. Honda dropped for the second day this week, losing 4.9 per cent to Y3,100, while larger rival Toyota lost 4 per cent to Y5,310. Nintendo plummeted 8.5 per cent to 53,800.

Chip-related stocks suffered after Intel's disappointing fourth-quarter profits and cautious outlook for 2008. Advantest dropped 4.2 per cent to 2,600.

"Everyone is very pessimistic," said Mamoru Shimode, Japan chief equity strategist at Deutsche Securities. "There are also jitters about [Japan's] upcoming corporate earnings season where there are expectations for many downward revisions."

Mizuho shares sank 8.8 per cent to Y459,000. Mitsubishi UFJ slid 4.7 per cent to 953 following a report that indicated Japan's largest bank had some Y50bn in subprime-related losses, more than ten times its previous estimate.

It wasn't only Japanese banks hurting. HSBC, which makes about a third of its revenues in North America, dropped 4.5 per cent to HK$115.40. Property shares, which usually benefit on bad US news as that means potentially lower interest rates in the territory because of the Hong Kong dollar's peg to the US currency, also fell. Cheung Kong lost 4.8 per cent to HK$129.20.

Shares of mainland Chinese companies were not immune to the US gloom. Cnooc, the oil company, plummeted 8.4 per cent to HK$12.18. China Mobile dropped 4.6 per cent to HK$119.

The mining company BHP Billiton lost 3.1 per cent to A$37.52 and its smaller rival and takeover target Rio Tinto dropped 3.0 per cent to A$122.96.

FTSE likely to head lower at open

London equities were expected to fall at the open on Wednesday after sharp losses on Wall Street and in Asia keep the focus firmly on the economy and the outlook for corporate earnings.

The FTSE 100 was expected to fall about 22 points at the open, according CMC Markets.

CMC trader James Mitchell said: "The FTSE is going to be eyeing the 6,000 level, which hasn't been tested since last August, and although UK employment data may offer some indication as to the strength of the UK economy, it's the worldwide picture - specifically the state of the US - that will continue to dominate."

Meanwhile, data from the Royal Institute of Chartered Surveyors showed that house prices fell in December, at the fastest rate since the early 1990s when the UK was in recession.

Rio Tinto, the mining group currently resisting takeover moves by BHP Billiton, said that in 2007 it had set annual production records for iron ore, bauxite, alumina, aluminium, refined gold and refined copper.

"Against a background of record prices for many of our commodities and a strong outlook for demand in developing markets, we look forward with confidence," the company said.

Experian, the information services group, reported fourth quarter organic revenues were up 2 per cent. The company said trading conditions were likely to remain tough and announced plans to cut costs. Experian added that it continued to target double-digit earnings growth for the full-year.

Punch Taverns said like-for-like sales at its core managed estate fell by 2.2 per cent in the 20 weeks to January 5, as last year's smoking ban in England and Wales coincided with declining consumer confidence.

The company said it remained cautious over the short-term outlook for the pub sector, but said long-term prospects were good.

Enterprise Inns among leading fallers

Enterprise Inns was among the leading FTSE 100 fallers on Tuesday as the index suffered its worst session since the height of the credit squeeze in August.

The pub operator is due to issue a trading update on Wednesday and few expect good news. Analysts have expressed concerns over Enterprise's high levels of debt and the effect of the consumer slowdown on its pubs business. Punch Taverns, which holds its annual meeting on Wednesday, also closed sharply lower.

Mark Brumby, an analyst at Blue Oar Securities, said: "Punch and Enterprise have trimmed all the fat, so any shocks that hit their tenant pub businesses will pass through to the companies pretty quickly. Although Enterprise has been around for years, it has not been tested in its current form in a recession."

Enterprise closed down 6 per cent at a two-year low of 392p while Punch lost 6.9 per cent to 618p.

Confidence in the wider market was undermined by fears of a consumer-led recession on both sides of the Atlantic.

The FTSE 100 slumped 190.1 points, or 3.1 per cent, to 6,025.6, its worst day in five months and its lowest level since August. The mid-cap FTSE 250 dropped 265.8 points, or 2.6 per cent, to a 16-month low of 9,765.8.

The extent of the consumer slowdown in the UK was underlined as normally reliable supermarket group Tesco, down 3.1 per cent to 407p, failed to meet analysts' expectations, while Debenhams, off 16.7 per cent to 63¾p, and Burberry, 16.4 per cent lower at 406½p, also disappointed.

Home Retail Group lost 6.8 per cent to 261¾p, Carphone Warehouse slid 6.2 per cent to 293p and Kingfisher lost 6.8 per cent to 122.2p. JPMorgan slashed its stance on Kingfisher from "overweight" to "neutral" and said the B&Q owner faced "major challenges . . . from the impact of the slowing housing market".

J Sainsbury bucked the trend, rising 1.8 per cent to 386p, as Goldman Sachs added the UK's third largest supermarket group to its "conviction buy" list.

"We believe Sainsbury's share price sufficiently captures the recent slowdown in top-line growth," analyst Sreedhar Mahamkali wrote, pointing out that Sainsbury's £8.6bn property portfolio was worth in excess of the group's enterprise value.

Among the handful of gainers, credit checking company Experian Group rallied from Friday's low, up 2.5 per cent to 375p, before a trading update on Wednesday.

Bank stocks were also hit hard as news of a further $18bn of writedowns at Citigroup undermined hopes of a sector recovery. Royal Bank of Scotland dropped 5.9 per cent to 392p, Alliance & Leicester fell 4.8 per cent to 717p and Northern Rock plunged 16.1 per cent to an all-time low of 69¼p following its extraordinary meeting in Newcastle.

HSBC lost 4.8 per cent to 772½p as Goldman Sachs analysts in Hong Kong warned that as much as 70 per cent of the bank's $91bn subprime mortgage loan book could fall into negative equity.

Taylor Wimpey ended the session as the biggest blue-chip faller, off 7.7 per cent at 159.2p, as the housebuilder predicted a tough year for the industry.

GlaxoSmithKline, down 2.4 per cent to £13.22, and AstraZeneca, 3.5 per cent lower at £22.27, gave back some of their recent gains as Morgan Stanley downgraded European large-cap pharmaceuticals from "attractive" to "in line". It said: "We are adopting an increasingly cautionary stance on the sector as we think the market has yet to acknowledge the extent of the structural challenges facing the industry. Large cap pharma will need to make radical changes to their business models if they are to generate positive returns after 2013."

Restaurant Group jumped 10.6 per cent to 136p amid hopes of a takeover.

FirstGroup lost 5.9 per cent to 634½p as Goldman Sachs added the transport group to its "conviction sell" list. "We expect earnings guidance for 2009 to disappoint given the cost of fuel, the economic weakness of the US and the weakening outlook for the UK economy," the bank said.

Imperial Energy lost 9.9 per cent to £16.35 as Peter Levine, chairman, netted £25m from the sale of 3 per cent of the explorationcompany. He retains a 6 per cent holding.

Overview: Equities fall on economic outlook

A worsening outlook for the global economy drove stock markets sharply lower on Tuesday, with the S&P 500 closing at a 10-month low and intensified speculation about an emergency Federal Reserve rate cut.

News of an unexpected 0.4 per cent drop in US retail sales last month and a record quarterly loss of $9.8bn, marked by an $18.1bn writedown on mortgages and increased credit card loss provisions at Citigroup (NYSE:C), the investment bank, helped undermine Wall Street.

In Europe, a weak survey of German investor sentiment and unexpected subprime-linked writedowns at Hypo Real Estate weighed.

"There is a clear sense out there that the real economy is now facing a major risk," said Ian Harnett, managing director of Absolute Strategy Research. "The question is: how responsive will the central banks be?"

The US bond market rallied to its best levels as stocks slumped to fresh lows late on. The yield on the policy-sensitive two-year Treasury note was trading at2.50 per cent and had reversed a climb towards 2.59 per cent early in the day.

Dominic Konstam, head of interest rate strategy at Credit Suisse, said: "The two-year is pretty reasonably priced, as it is easy to see the Fed cutting rates to at least 3 per cent and even2.5 per cent this year."

Immediately after the slide in retail sales for December, the futures market briefly priced in a 56 per cent chance of a 75bp cut in US rates at the end of the month. That call had waned to around a 40 per cent chance late in the day and limited the two-year note yield's fall.

"Speculation for an inter-meeting ease appears to be waning," said David Ader, bond strategist at RBS Greenwich Capital. "The market continues to price in 50bp of Fed easing by the end of the month."

Combined with relatively benign producer price inflation figures, Tuesday's figures "add weight to theargument for large rate cuts", said James Knightley, at ING.

In Germany, the writedowns at Hypo Real Estate were compounded by another drop in the ZEW institute's economic expectations index, its seventh decline in the past eight months, to a 15-year low.

"German business confidence is in dire straights," said David Brown, European economist at Bear Stearns. "Unless the European Central Bank wakes up pretty soon to easing monetary policy, the eurozone economy could be paying the price with much weaker growth this year."

Equity markets across the globe took a severe beating. In New York, the S&P 500 closed down 2.5 per cent, its lowest close since March.

The Dow Jones Industrial Average fell 2.2 per cent and closed at a nine-month low, while the Nasdaq Composite declined 2.5 per cent, its weakest close since March.

In Europe, the FTSE Eurofirst 300 shed 2.6 per cent and the FTSE 100 in London fell 3.1 per cent.

Asian stocks also fell heavily. In Tokyo, the Nikkei 225 Average fell 1 per cent to close below 14,000 points for the first time in more than two years.

Hong Kong fell 2.4 per cent, Seoul shed 1.1 per cent to a five-month closing low and Sydney lost ground for a seventh successive session.

Government bonds pushed higher after the US data releases and were buoyed by weak stocks. The yield on the 10-year US Treasury was down 9bp at 3.68 per cent while the 10-year Bund yield fell 3bp to 4.02 per cent.

On the currency markets, the dollar tumbled to a 2½-year low against theyen, and edged higher versus the euro.

The Japanese currency rose across the board, notably against the Australian and New Zealand dollars, as investors scaled back risky carry trades, where the yen is sold to fund purchases of higher-yielding assets.

Sterling pulled away from a record low against the euro after the release of UK inflation figures.

In commodities, oil fell back amid concerns that slowing US growth could hit demand. February West Texas Intermediate fell $2.30 a barrel to $91.30. Gold held above $900 an ounce after setting a record high of $914 on Tuesday.

The Baltic Dry Index, a gauge of freight cost for bulk commodities such as iron ore, coal or grain, dropped a further 4.15 per cent to 7,336, taking its fall over the past three days to 12.45 per cent.