Markets nervous as ECB ignores call for rate cut and US outlook weakens

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The Independent Online

Markets suffered a turbulent day on both sides of the Atlantic as figures highlighted the weakness of the US economy and the European Central Bank dashed hopes of a rate cut.

Bargain hunters on Wall Street emerged too late in the day to help benchmark indices across Europe, which ended in negative territory after a spate of US data pointed to weak demand for goods, homes and workers. In late trade, the Dow Jones reversed a 167-point fall to end up 117 at 9462.9.

It followed the publication of the US Federal Reserve Board's Beige Book regional survey on Wednesday that showed the economic slowdown had continued into October.

The number out of work in the US climbed last week as the economy reeled from the impact of the 11 September terrorist attacks. The number of initial jobless claims rose 8,000 to 504,000. This was above forecasts of 497,000.

Meanwhile, sales of costly durable goods fell for the fourth straight month in September, plunging 8.5 per cent or the worst out-turn for five years.

Sales of existing homes tumbled 11.7 per cent in September, the National Association of Realtors said. The drop was the largest since April 1995.

An index measuring the number of jobs being offered across the US fell in September to its lowest level since February 1982.

Anthony Karydakis, an economist at Banc One Capital Markets said: "Clearly all of the numbers put together confirm the overall economic environment is becoming quite dismal."

In Europe, the ECB made no statement as to why it decided to keep rates unchanged at 3.75 per cent. Markets had been split over the outcome.

Some analysts expected a cut in the wake of a massive fall in German business activity. But others had said the ECB would not want to be seen to react to one figure for one country or to give in to political pressure. Economists said the ECB was now likely to cut rates on 8 November if key surveys of euroland industrial and services growth turned out weak. "We still think on balance it's a half-point rate cut but with a big risk of only a quarter," said Julian Callow at CSFB.

Stock markets in France, Germany, Italy and Spain were all down almost 3 per cent. In London the FTSE 100 index of blue chips fell 1.6 per cent.

Finally, the World Trade Organisation said trade growth looked set to collapse to 2 per cent this year from a 12 per cent peak in 2000 and could be driven lower by the impact of the US attacks.