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FTSE slides by 3.9 per cent after Bear Stearns sale

17/03/2008

London's FTSE 100 has closed at 3.86 per cent down as investors reacted in shock to the sale of Bear Stearns to JPMorgan Chase.

The Dow Jones has recovered slightly after opening 1.5 per cent down for the first time since the cut-price sale was announced, but markets across the globe have suffered.

The banking sector was hit in particular, with Alliance & Leicester, HBOS, Royal Bank of Scotland and Barclays all recording falls.

In Frankfurt the Dax was 4.08 per cent down, while the Cac 40 in Paris fell 3.51 per cent.

The Nikkei 225 closed down 3.71 per cent, while the Hang Seng saw a drop of 5.18 per cent.

Share prices fell amid fears Bears Stearns' loss of liquidity may be contagious.

The loss in confidence bringing about the falls came despite Federal Reserve action to calm the markets by bolstering market liquidity through creating a six-month lending facility to improve financing in the securitisation markets and a cut to its discount rate of 0.25 percentage points.

A Fed statement read: "Liquid, well-functioning markets are essential for the promotion of economic growth."

There are now fears the markets are being propped by central bank cash, which is distorting the market.

US president George Bush said in a press conference at the White House that the Federal Reserve had moved quickly to bring order to the financial markets.

He thanked Treasury secretary Henry Paulson for his work over the weekend to show that that the United States was "on top of the situation".

Speaking in the Commons, UK prime minister Gordon Brown said the government was doing its utmost to ensure stability in the wake of the Bear Stearns crisis.

"While our economy is resilient and fundamentally strong, we will at all times remain vigilant and particularly at this time of global uncertainty will continue to take whatever action is necessary to maintain economic stability and growth," he said.