Panic selling again swept global equity markets today after the coordinated worldwide cut in interest rates failed to quell a drumbeat of fears over a global recession, with investors charging into gold and other safe havens.
US and European stock and government debt markets were extremely volatile. US stock indexes see-sawed wildly and U.S. benchmark Treasury yields marked their biggest single-day rise in more than a decade.
An index known as Wall Street's fear gauge, the Chicago Board Options Exchange Volatility Index .VIX>, soared as much as 10 percent to a record intraday high. An upward spike in the VIX often occurs when equity markets suffer steep losses.
European shares sank to a near five-year closing low, and overnight interbank lending rates in Europe fell on the coordinated central bank rate cuts. But the cost of borrowing longer term remained high, reflecting a reluctance of banks to lend.
Oil prices fell as concerns about the impact of the global financial crisis on demand and rising U.S. inventories outweighed the move by central banks to cut rates.
Investors initially warmed to the one-half percentage point cut in interest rates by the U.S. Federal Reserve, the European Central Bank, the Bank of England and other central banks in the first coordinated move since the September 11th attacks of 2001.
But confidence was short-lived as rallies on Wall Street failed. Short-dated euro zone government bonds rallied and gold held onto strong gains as investors fled to safe-havens.
The yen surged to its highest level in three years against the euro as fears widened that the coordinated rate cut effort may not be sufficient to thaw credit markets.
The benchmark FTSEurofirst 300 index of top European shares, after falling nearly 8 percent in early trade, recouped most of its losses after the rate cuts only to slide anew.
Wall Street performed almost the same, with the three major indexes whipping between declines and gains of as much as 2 percent before all closing lower.
The Dow Jones industrial average closed down 189.01 points, or 2 per cent, at 9,258.10. The Standard & Poor's 500 Index fell 11.29 points, or 1.13 per cent, at 984.94. The Nasdaq Composite Index shed 14.55 points, or 0.83 per cent, at 1,740.33.
The S&P financial index fell 3 per cent.
In the last hour of trading, US treasury secretary Henry Paulson warned that the turmoil "will not end quickly." He also said it may be several weeks before the Treasury Department begins buying unwanted and illiquid assets from financial firms under the $700 billion bailout program that Congress approved last week and that is now U.S. law.
With financial markets awash with signs that credit is expensive and hard to come by, investors sold off banking shares on both sides of the Atlantic.
US Treasury prices fell after two auctions totaling $16 billion.
The benchmark 10-year US Treasury note fell 46/32 in price to yield 3.68 per cent, and the 2-year US Treasury note slipped 8/32 in price to yield 1.60 per cent.
The dollar fell against a basket of major currencies, with the US Dollar Index off 0.26 per cent at 80.908. Against the yen, the dollar fell 1.46 percent at 99.85.
The euro rose 0.31 per cent at $1.3659.
Spot gold rose $18.60 to $905.20 an ounce. Spot gold has risen 25 percent since mid-September.
Oil prices hit a 10-month low, but pared losses after US stocks rose.
US crude settled at $88.95 a barrel, down $1.11. London Brent crude fell 6 cents to $84.60 a barrel by 2:53 p.m. (1853 GMT).
In Asia, the Nikkei plunged 9.4 per cent in its biggest one-day drop since the 1987 stock market crash, on fears of a global recession.
The MSCI Asia-Pacific index of stocks outside Japan tumbled 7 percent, dragged down by the global financial panic.