The turmoil battering world markets showed signs of easing today amid hopes of a fresh round of stimulus measures to boost the flagging US economy.
London’s beleaguered blue chip share index staged a modest fightback as it clawed back the 5% losses it suffered in the morning, before swinging between positive and negative territory in a volatile day of trading.
In the US, the Dow Jones Industrial Average opened nearly 1% up, while the CAC 40 in France also saw gains of 1%.
The reversal in fortunes for world markets came amid speculation that the US Federal Reserve would announce a third round of money printing, or quantitative easing later today, to help inject some life into the world’s biggest economy.
The FTSE 100 Index has tumbled 16% in the past two weeks amid panic that the eurozone will be crushed under the weight of its debts and the US will lead the world back into recession.
Eurozone leaders have intervened in bond markets to shore up the finances of debt-ridden Italy and Spain earlier this week.
Traders have now pinned their hopes on Federal Reserve chairman Ben Bernanke taking action to restore confidence by launching a third round of quantitative easing after it was stripped of its AAA credit rating for the first time.
Clem Chambers, chief executive of financial website ADVFN, said: “This volatility is classic stock market crash behaviour, as investors and traders become bi-polar in their dealings.
“The market is waiting for QE3 from Bernanke and if it is announced the market will rally hugely.
“If there is no shock and awe from the Fed, the Dow Jones will roll over and head towards 10,000.”
Louise Cooper, an analyst at BGC Partners, also warned of a bloodbath on equity markets if the Fed “doesn’t come up with something soon”.
Earlier in the day, the FTSE 100 Index fell below the 5000 barrier for the first time since July.
Traders are terrified that the stock market falls could help push the global economy into recession by destroying consumer confidence, prompting traders to dump more stocks and creating a vicious circle.
Despite today’s improvement, the FTSE 100 Index has lost around 1,000 points in the space of a month and yesterday posted four consecutive sessions of triple-digit losses for the first time in its 27-year history.
Yesterday, the Dow Jones Industrial Average recorded its sixth-worst point decline in the last 112 years.
Michael McCarthy, chief strategist at Sydney-based stockbroker CMC Markets, said the struggling US economy was quickly losing momentum.
“We’re clearly in fear territory. The major driver here seems to be weakness in the US economy. There are fears that it’s starting to stall and, if that’s the case, the whole global growth scenario could fall over.”