RTRS: Global stocks in red even after shock UK rate cut
By Natsuko Waki
LONDON (Reuters) - World stocks remained in the red while Wall Street was set for a weaker start on Thursday after a shock 1.5-point cut in UK interest rates and easing in euro zone and Swiss rates underscored troubles facing the global economy.
The Bank of England slashed interest rates to 3 percent, their lowest level in more than half a century, adding to a number of countries around the world lowering the cost of borrowing to combat the worst financial crisis in 80 years.
The unprecedented scale of easing gave a brief boost to UK and European stocks but gains quickly faded as fears grew that such dramatic action suggested the UK economy may be in even more trouble than previously thought. Sterling gyrated but it was down on the day against the dollar.
The Swiss National Bank also eased interest rates by 50 bps, taking its target range to 1.5-2.5 percent, while the European Central Bank disappointed many who had expected a bigger cut by taking benchmark rates down 50 bps to 3.25 percent.
Reductions in European rates come against a backdrop of further data highlighting the scale of a slowdown in the global economy. German manufacturing orders suffered the biggest fall since reunification in 1990 in September while UK house prices fell at their sharpest rate in at least 25 years in October.
"(The BoE move) highlights the very serious situation that the UK economy is in. On top of the very clear evidence that the economic downturn is deepening, credit conditions remain uncomfortably tight," said Howard Archer, economist at Global Insight.
The FTSEurofirst 300 index of European shares briefly bounced off lows, only to fall back lower again to stand down 3.1 percent. Britain's FTSE 100 stock index was down 3.5 percent.
MSCI world equity index lost 2.8 percent, after Asian shares fell 6.6 percent.
Sterling was down 0.3 percent at $1.5876, having wiped off gains made after the rate decision. The dollar rose 0.8 percent against a basket of major currencies.
"The more significant the banks cut rates and the more dovish related statements the better the chance of seeing equity markets stabilizing and currencies rallying thereafter," BNP Paribas said in a note to clients.
"A more conservative approach could lead to substantial equity losses taking currencies with it."
The December bund futures rose 67 ticks, backed by capital inflows seeking safer government bonds.
U.S. crude oil fell 2.8 percent to $63.55 a barrel while gold was little changed at $740.40 an ounce.
