US stocks closed lower after Federal Reserve chairman Ben Bernanke’s downbeat testimony before Congress sapped the market of yesterday’s enthusiasm. However, losses were moderate even after Mr Bernanke raised the dreaded prospect of an economic recession.
The Dow closed 45.44 points, or 0.36 per cent lower at 12608.82, while the Nasdaq edged down 1.35, or 0.06 per cent to 2361.40. The S&P 500 slipped 2.65, or 0.19 per cent to 1367.53.
About an hour after Mr Bernanke’s 9:30am hearing began, stocks traded higher, but Wall Street fell back a bit in the afternoon.
Setting an ominous tone early in session, Mr Bernanke flagged the possibility of a recession in his testimony to the joint Economic Committee of Congress.
Mr Bernanke noted economy was still growing slightly, but cautioned that an economic recession was possible.
"It now appears likely that real gross domestic product will not grow much, if at all, over the first half of 2008 and could even contract slightly," Mr Bernanke said.
He said the economic outlook had deteriorated since the Fed's last forecast was released in January, attributing the downbeat outlook to a likely deterioration in homebuilding, employment and consumer spending.
Mr Bernanke also defended the Fed’s decision to back JPMorgan’s takeover of Bear Stearns. He also said the emergency loan followed a warning by the firm that it would have to file for bankruptcy the next day.
Bear Stearns managed to end the session 0.9 per cent higher, but JPMorgan fell 1.6 per cent.
Among the sector’s other majors, Citigroup added 0.8 per cent, while Bank of America Corporation and Merrill Lynch fell 1.4 per cent and 1.5 per cent respectively.
Just before the market close CNBC reported that Merrill Lynch was planning to cut 10 per cent to 15 per cent of its workforce, excluding brokers, sometime in May.
Elsewhere, the Wall Street Journal reported that National City, the embattled Ohio bank dealing with loan losses and a declining share price, was considering selling itself to rival KeyCorp.
National City shares fell by 7.7 per cent, while KeyCorp added 3.6 per cent.
General Electric and Caterpillar fell back from yesterday’s rally, giving up 1.8 per cent and 1.1 per cent respectively. The decline among industrials was driven by investor concerns that the housing and credit market crises raised the risk of a broader slowdown.
Backing up the fears with data, the Commerce Department said factory order fell by a worse-than-expected 1.3 per cent in February. Economists had forecasted a decline of 0.8 per cent.
However, it is worth noting that contraction was less than the 2.3 per cent decline in January.
Among technology stocks, Blackberry maker Research in Motion fell 1.4 per cent. However, the stock rose in after-hours trade after the company reported better-than-expected earnings after market close and issued upbeat guidance for the coming quarter.
Meanwhile, electronics retailer Best Buy said a slowdown in customer traffic led to a dip in quarterly profit. The company posted fourth-quarter profit that came in 3 per cent lower than the same period last year, but the company's earnings and revenue still beat analysts' expectations.
Best Buy shares closed 1.1 per cent higher.
Looking to commodities, NYMEX light crude for May delivery soared US$3.85 to US$104.83 a barrel.
The Department of Energy's weekly oil inventory report showed crude supplies increased 7.3 million barrels, much more than the 2.3 million analysts had expected. However, gasoline supplies dropped more than expected.
Meanwhile, COMEX gold for June delivery added US$12.40 to US$900.20 an ounce.
UK markets
British shares advanced on Wednesday, with resource plays providing positive momentum. Financials also contributed to the upside, as investors hoped yesterday’s UBS and Deutsche Bank writedowns were the beginning of the end for the sub-prime chaos.
The benchmark FTSE 100 gained 63.30, or 1.08 per cent to 5915.90.
Of mining shares, Xstrata gained 3.5 per cent on media reports that Brazil's Vale held open the door for a possible resumption of takeover talks with the Anglo-Swiss miner. Citigroup also lifted its share-price estimate for the world's fourth-largest copper producer on earnings prospects from rising coal prices.
BHP Billiton gained 2.2 per cent, Rio Tinto picked up 2.4 per cent and Vedanta Resources added 2.4 per cent. Meanwhile, Kazakhmys was 0.8 per cent higher despite trading ex-dividend.
Among the financials, Barclays gained 5 per cent, Royal Bank of Scotland jumped 5.7 per cent and Standard Chartered picked up 1.7 per cent.
Bucking the trend was Britain's biggest mortgage lender, HBOS, which shed 1.9 per cent, after it said retail profit margins were more difficult to predict in uncertain market conditions.
Britain's second-largest drug maker AstraZeneca climbed 1.7 per cent after Citigroup upgraded the stock on expectations sales for the Crestor cholesterol treatment will increase after a study found evidence that the drug helped cut deaths in patients with no evidence of heart disease.
European markets
Share markets also pushed higher on the other side of the Channel, rising for a second day. Banks and insurers led the advance with investors optimistic about a recovery for financial firms.
In Germany, the DAX 30 rose 57.11, or 0.85 per cent to 6777.44, while in France, the CAC 40 pushed 45.97, or 0.94 per cent higher to 4911.97.
Europe's largest bank by assets, UBS, built on yesterday’s advance to post it biggest two-day winning streak in five years. Shares in the Swiss giant finished 4.9 per cent higher, making it a two-day total of 18 per cent
France's largest insurer, AXA, advanced 3.7 per cent, while Germany’s second-largest bank, Commerzbank, shot up 6.1 per cent after it said at a banking conference that it was in a good position to ride out the global financial crisis.
Sweedish carmaker Volvo jumped 4.6 per cent after Morgan Stanley raised its recommendation for the world's second-largest truckmaker, saying the stock was one of the most attractive in the industry.
On the downside, German automaker Daimler slipped 1.8 per cent after reporting a drop in US sales for Mercedes-Benz. The news saw Morgan Stanley downgrade the shares.
Japanese markets
Shares in Tokyo rallied 4 per cent yesterday, with Japanese investors getting on the "banks are getting better" bandwagon. Also helping matters was a strengthening US dollar against the yen, boosting the value of exports to the US.
The Nikkei rallied 532.94, or 4.21 per cent to 13,189.36, its biggest daily percentage gain since 14 February.
Standouts in the financial sector included Mizuho Financial Group, which shot up 10 per cent after posting a $2.8 billion loss linked to US home mortgages. Affiliate Shinko led brokerages higher, advancing 14 per cent.
Honda, which gets more than half of its profit from North America, rallied 7.4 per cent on the stronger yen. Other major exporters to the US also chimed in, with Canon advancing 6 per cent and Sony soaring 5.9 per cent.
Subaru maker Fuji Heavy Industries climbed 6.6 per cent on newspaper reports that Toyota plans to almost double its stake in the company to 17 per cent.
Property stocks also looked good, with Sumitomo Realty & Development, the nation’s third-largest listed developer, jumping 12 per cent, while smaller rival Urban Corp tacked 17 per cent on to its price.
Hong Kong markets
Stocks also ran higher in Hong Kong, led by financial and property shares. Investors perked up after yesterday’s Lehman Brothers share offering boosted US sentiment, which was felt across the Pacific.
After being as much as 4.6 per cent higher in intraday trade, the Hang Seng Index trimmed down to finish 734.97, or 3.17 per cent higher at 23872.43.
Heavyweight HSBC gained nearly 2 per cent, while China’s second-largest life insurer, Ping An, jumped nearly 5.6 per cent.
Property stocks rose further as investors looked for bargains after recent lows. Asia's biggest developer, Sun Hung Kai Properties, added 4.6 per cent, while Sino Land ran 8.5 per cent higher and Hang Lung advanced 5.9 per cent.
Star Cruises rallied 7.7 per cent after it announced it would join with Alliance Global Group to develop and operate hotel and casino complexes in the Philippines.
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