World stock markets sank on Wednesday after both the US Federal Reserve and the Bank of England downgraded their economic outlooks, sparking deep concern over the global recovery, dealers said.
In late morning deals in Europe, London dived 1.52 percent, Frankfurt fell 1.65 percent and Paris tumbled 1.72 percent. And in earlier Asian trading, Hong Kong stocks dropped 0.83 percent and Tokyo slumped 2.70 percent.
In the foreign exchange market, the dollar rose against the euro, while the yen neared 15-year highs, as investors sought a safe haven in the face of renewed global economic jitters.
Markets were put on the backfoot after the US Federal Reserve warned late on Tuesday of a US slowdown, but vowed to renew crisis-era stimulus measures to help prop up the world’s biggest economy.
Investor sentiment took another heavy knock on Wednesday after the Bank of England (BoE) also cut its British economic growth forecasts, but said the recovery would continue despite high inflation.
The BoE forecast that gross domestic product growth would average about 3.0 percent over the next three years. That compared with the prior estimate of a range between 3.0-4.0 percent that was given in May.
“Equity markets continue to drift lower on the back of concern about economic recovery prospects in western economies,” CMC Markets analyst Michael Hewson told AFP.
“The Fed’s downbeat assessment of the economic outlook and this morning’s similar statement from the Bank of England has seen the markets adopt a ‘risk-off’ strategy and book profits from the recent range highs.
“Until economic data starts to improve it looks like markets could well remain under some pressure.”
On Tuesday, members of the Federal Open Market Committee downgraded their assessment of the health of the world’s biggest economy, saying growth “has slowed in recent months.”
The 10-member committee warned “the pace of economic recovery is likely to be more modest in the near term than had been anticipated.”
And the Fed promised to maintain crisis measures, which had been scheduled to end.
The bank had battled the worst recession in a generation by buying up US debt, mortgage-backed securities and other financial products to lubricate markets.
The Fed said it would now reinvest cash from maturing mortgage bonds rather than shrink its two-trillion-dollar portfolio as planned — essentially resuming crisis-era spending.
“The Fed has taken something of a proactive step in countering current worries over the US economic slowdown although it would be difficult to argue that the market has been entirely convinced by this approach,” said IG Index analyst Cameron Peacock.
Asian markets were also weighed by Chinese data showing industrial production and fixed-asset investment last month had eased, adding to evidence the economy, which is key to regional exporters, is slowing.
However, Shanghai ended a roller-coaster day 0.47 percent higher, after consumer inflation data came in below expectations.