Stock markets are facing further losses after the New York market closed sharply lower for the second successive day, driven downwards by the continuing uncertainty over emerging markets and fears that the growth of US corporate earnings does not justify current stock valuations.
The fears over corporate earnings were fuelled by poor results from electronics giant Kodak, where fourth-quarter earnings came in well below market forecasts. This generated a broad-based sell-off as investors took profits. At the close, the Dow Jones Industrial Average was down more than 2.4 per cent on its overnight level and has now given up all the gains of last week.
Analysts said the fall, worsened by worries about Brazil's economic stability, was a sign that the powerful new year's rally on the New York market was flagging. One analyst said that the results from Xerox had shaken investors' confidence and even the high-flying Internet stocks like Yahoo!, which have soared in recent weeks, were not immune to the downward move of the market.
At the same time, the crisis in Brazil has shown no sign of abating with investors fearing that Wednesday's devaluation of the real by about 9 per cent may not be enough to curb speculative selling and that a further fall in the real/dollar may be needed before Brazilian markets find some stability.
In the meantime, the International Monetary Fund is poised to send a delegation to Brazil as the devaluation casts doubt over a $41 billion (#35.06 billion) international rescue package agreed by the fund in November. Scepticism is growing about the country's ability to meet the tough budgetary targets that are the basis for the package.
The agreement with the IMF ruled out a devaluation, and the Fund was not consulted before Wednesday's decision. Its mission is due to arrive in the next few days.
The Brazilian stock market plunged for the second successive day yesterday. Trading was suspended after the Bovespa index fell by 10 per cent, after a 5 per cent fall on Wednesday. After the suspension was lifted, the Bovespa failed to recover and was just short of 10 per cent at the Sao Paolo close.
Earlier, European stocks rebounded following Wednesday's slide, which was prompted by the Brazilian devaluation. But this recovery quickly fizzled out, although defensive stocks such as telecoms were still in demand from investors. The banking sector also began recovering, nowhere more so than in Dublin where the main banking stocks regained a good portion of their Wednesday losses.
The Irish market was one of the few to regain some ground on the day. In London, the FTSE 100 closed 0.5 per cent lower. Many market participants took the view that US and European monetary authorities would act quickly, if needed, to prevent the Brazilian crisis from spreading globally.
