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U.S. Stock Rebound Proves Short-lived

Frances Vega |
August 10, 2011 | 12:22 p.m. PDT

Executive Producer

Stocks took another nose dive Wednesday morning, reversing the short rebound from the Federal Reserve’s announcement that it would

Creative Commons
Creative Commons
keep interest rates low for a couple of years.

Even though the drop was not as drastic as Monday’s 634.76 points, The Dow Jones industrial average fell as much as 474. The Nasdaq composite index and Standard & Poor’s 500-stock index were down less sharply.

According to the L.A. Times:

The slide comes hard on the heels of one of the market's best recent days. The Dow soared nearly 500 points before the close Tuesday after the Fed announced its intention to keep interest rates low and to consider using additional policy tools to prop up the economy.

Overnight, stock markets in Asia followed Tuesday's rally in the United States.

Much of the pessimism on Wednesday morning came as investors turned their attention to Europe, and particularly France, which has generally escaped scrutiny as investors focused on Spain, Italy and Greece.The cost of insuring French debt, an indicator of pessimism about a country's finances, rose to a record high on Wednesday. France is the most indebted of all Europe's AAA rated countries, and unlike the United States, which recently lost its AAA rating from Standard & Poor's, France cannot choose to expand its monetary supply in order to pay creditors.

The bipolar nature of stock markets over the last few days shows the uncertainty investors are feeling as more evidence points to the possibility of a global economic slowdown. However, market experts said the U.S. stocks should stabilize. 

According to the NY Times:

 Analysts at LGT Capital Management commented in a note on Wednesday that policy makers should be able to stabilize the market in the United States, “given that the economy is not in recession and many companies remain financially strong and profitable."

But they added that it remained to be seen whether the new measures would produce a lasting effect.

“We believe that uncertainties about the economy and the debt issues are likely to persist for a while, and exert pressure on markets again in the near future,” they wrote.



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