Markets Plunge Amid Growing Recession Fears

The FTSE 100 has lost more than £64bn of its value - as investors signal a lack of confidence in the world's ability to avoid a new recession.

The latest sell-off began last night in the US when the Federal Reserve's announcement of a new stimulus plan, fell flat.

The policy, named Operation Twist, will involve America's central bank selling short-term treasuries (US government bonds) and buying more longer-term debt to the tune of $400bn (£256bn).

The move is designed to get the US economy growing by pushing down interest rates on everything from mortgages to business loans - in turn giving consumers and businesses more money to spend.

But it falls short of its previous stimulus attempts, so-called quantitative easing, when the Fed pumped extra money into the economy by buying more assets.

The Dow Jones Industrial Average lost 2.5% of value on the news on Wednesday night and European markets gave a similar verdict today.

The FTSE 100 opened over 2% lower then dived further on news of downgrades for three US banks and fears for growth in China and Germany.

It closed down 246 points, or 4.67%, at 5041 - a loss of £64bn.

In Germany the DAX shed 5% of its value and France's CAC 40 lost 5.2%.

A European Central Bank study also suggested fiscal imbalances in the eurozone risked undermining its stability and sustainability.

Miners have seen the bulk of the pain on the FTSE 100, on expectations that demand for minerals will sink with growing evidence today that the French and German economies are flat-lining.

Confidence appears shattered, despite the latest prediction from the International Monetary Fund that world recession can be avoided.

At a news conference today, president of the World Bank Robert Zoellick admitted his forecast that there would be no new downturn was coming under pressure.

But market disappointment over the Fed's latest intervention is not shared by everyone.

Speaking to Sky's business presenter Joel Hills on Jeff Randall Live, US investment expert Dodge Dorland said: "I'm delighted the Fed did not move closer to quantitative easing.

"It still keeps a few of the Fed's weapons ready for the future, it did not overplay."

Phil Tyson, head of strategy at MF Global, told Sky: "A lot of what the Fed said was priced in already... the impact on the wider economy could be more negligible."

America's economy is continuing to suffer with sluggish growth and high unemployment.

The IMF forecasts growth of just 1.5% for America this year.

The Federal Reserve seemed to acknowledge the IMF's assessment in its statement adding: "There are significant downside risks to the economic outlook, including strains in global financial markets."

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