Shares volatile in uncertain times

Wall Street shares have rebounded after a stocks sell-off in Europe prompted by continued worry about the US economy and mortgage industry. The Dow Jones fell below 12,000 points for the first time in four months, but bounced back into positive territory.

Earlier London’s FTSE 100 index slumped 160.6 points, or 2.5%, at 6,000.7 with French and German markets also hit.

The sell-off came as stocks were starting to recover from a sharp slump that rocked markets late in February.

A 2% slump in the US on Tuesday sparked the latest round of global stock turmoil.

Analysts said that market instability was likely to continue, especially as many markets and stocks had climbed to their highest levels in more than six years.

Lee Cheng Hooi of EON Capital said that the worry for investors was that the problems in the US mortgage market could cause the world’s biggest economy to slow down.

“This will cause a domino effect on the world economy,” he explained. “There could be more bloodbath to come.”

Todd Leone, managing director of equity trading at Cowen & Co in the US said he believed the slump was simply a “healthy correction”.

“The question is when do we stop?” he said.

Iin New York, the Dow Jones closed up 0.48%, 57.44 points at 12,133.40. having slipped below the psychological 12,000-point level earlier. The Nasdaq gained 0.9% to 2,371.74.

Investors searching for bargains and the strength of energy firms in the face of rising oil prices were behind the rebound, analysts said.

Earlier France’s Cac-40 index closed 2.5% lower at 5296.22 points, while Germany’s Dax index fell 2.7% to 6,447.7.

This latest round of selling has been ignited by concerns over the US sub-prime mortgage market.

Sub-prime lenders, who target consumers with poor credit histories, have been hit by an increase in defaults and bad loans.

Figures have shown that late mortgage payments and home repossessions in the US are at their highest level since records began.

New Century, the second-biggest sub-prime mortgage lender in the US, is seen by many observers to be close to bankruptcy – and the fear among investors is that this will ripple out into more stable parts of the economy.

“US sub-prime woes are mushrooming,” said Saxo Bank analyst Torben Krogh Neilsen, predicting further falls across world markets.

“It’s hard to believe they’ll be contained and not impact the broader US – and by extension, the global – economy.”

“The sell-off is in sympathy with the sharp sell-off we saw overnight on Wall Street, and it highlights the continued nervousness out there,” said David Cohen of Action Economics.

But “the world economy seems to be remaining on an upward trajectory”, he explained, adding that this is probably “a correction after the strong rally that was experienced for the previous several months around the world”.

For investors, the big question is how far and for how long this correction will last, and whether or not the current bull market run will be broken.

Last year, markets lost as much as 10% of their value in May, only to recover and surge even higher, setting many record share prices.

In the weeks before the first sell-off, sparked by fears of a new capital gains tax in China and Beijing’s attempts to slow the economy, the FTSE 100 was at its highest level in more than six years.

Japan‘s Nikkei fell 2.9% on Wednesday, and in Hong Kong, India and Australia indexes lost more than 2%.

Although analysts said Asia’s leading economies remained fundamentally strong, markets across the region are particularly sensitive to signs of a possible economic slowdown in the US, a key export market.