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While you were sleeping: BusinessWire overnight wrap

Wednesday 8th October 2008

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The global economy is headed for a "major downturn" next year, as the US economy ekes out growth of just 0.1%, the International Monetary Fund said in report prepared for a G-7 meeting.

Federal Reserve Chairman Ben Bernanke signaled the fed is ready to cut borrowing costs in the world's biggest economy amid the prospects of a slump as the credit squeeze continues. Economic data and recent financial developments suggest "the outlook for economic growth has worsened and that the downside risks to growth have increased," Bernanke said in a speech in Washington.

Speculation about more concerted and combined efforts to reduce interest rates rose after the Reserve Bank of Australia yesterday cut its benchmark rate a greater-than-expected 100 basis points.

Stocks on Wall Street fell, led by financials. The Standard & Poor's 500 index dropped 4.2% to 1012.85, the Dow Jones Industrial Average declined 3.6% to 9593.18 and the NASDAQ Composite fell 4.3% to 1783.57.

Bank of America slumped 22% to US$25.27 after halving its dividend and announcing plans to sell US$10 billion of stock to shore up capital. Citigroup fell 7.5% to US$16.1 and JPMorgan Chase declined 6.8% to US$40.99.

Walt Disney Co. fell 4.5% to US$26.78 after Merrill Lynch cut its rating on the stock to "underperform" because of the outlook for earnings as economic growth slows. IBM declined 5% to US$95.45. Exxon Mobil gained about 2% to US$78.84 as the price of oil gained.

Crude oil rose, snapping four days of declines, amid speculation OPEC will ease production amid speculation, halting a 13 percent decline in the past four days, amid speculation OPEC will curb output because of falling prices. President Chakib Khelil said the cartel of oil producing nations would take "appropriate measures" to stabilize the market.

Crude oil for November delivery gained 2.8% to US$90.27 a barrel on the New York Mercantile Exchange. Gold futures for December delivery rose 1.8% to $882 an ounce and silver futures for December delivery rose 0.8% to $11.38 an ounce.

The US dollar was little changed at 101.91 yen from 101.82. It declined to $1.3610 per euro from $1.3499. The yen fell to 138.77 against the euro from 137.50 yesterday.

US Treasury bonds fell after the Federal Reserve said it would buy commercial paper to help revive short-term lending. The yield on two-year Treasuries rose 6 basis points to 1.49% while the 10-year yield rose 6 basis points to 3.51%.

Meantime, the cost of borrowing dollars overnight rose after UK banks met to consider emergency funding measures and Iceland's government took control of its second-largest lender, in more signs that the credit squeeze is widening.

The London interbank offered rate, or Libor, rose 157 basis points to 3.94%.

European stocks fell. The Dax 30 dropped 1.1% to 5326.63 and the FTSEEurofirst 300 declined 0.1% to 1003.6. The Dow Jones Stoxx 600 Index fell 0.3% to a four-year low 240.7. Financials led the decline. Royal Bank of Scotland Group slumped 39% on concern it may need government support, while Barclays Plc declined 9.2%.

By Jonathan Underhill



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