Claims for jobless benefits in the United States dipped in the latest week, but retail sales for many stores continued to fall sharply and a record number of US homeowners were behind on their home loan, according to the latest data.
Britains central bank cut rates to 0.5 percent and also pledged 75 billion pounds ($106 billion) of newly created money to buy bonds. The move, aimed at pumping up money supply, sent yields on government debt plummeting in the biggest one-day fall in at least a decade.
"With interest rates already at historic lows, the conventional rate cutting tool is becoming less and less effective as a means of stimulating the economy," said Ian McCafferty, CBIs chief economic advisor. The BoEs asset-buying program of up to 150 billion pounds is unprecedented in the UK but recalls a policy pursued by Japan at the start of the decade.
"This puts the Bank of England ahead of the US Fed in terms of the scope of its unconventional easing." said Rob Carnell of ING Financial Markets. The European Central Bank also cut rates to a record low 1.5 percent, aiming to boost a euro-zone economy that shrank a record 1.3 percent in the final quarter of 2008.
ECB LOWERS FORECAST ECB President Jean-Claude Trichet told reporters the ECB had revised downward forecasts for euro-zone economic growth made just three months ago. The economy was now forecast to contract between 2.2 and 3.2 percent in 2009.
Concerns raised about the future of General Motors pummelled share prices. European shares were down more than 2 percent and the Dow was off 3 percent at the lowest level since 1997.
GM said its auditors had raised substantial doubt about its ability to survive outside bankruptcy if it fails to stem its losses and stop burning cash, warning that it might not be able to "continue as a going concern." That pressed shares down 15 percent.
"It appears that the battle is being lost. ... This market is being driven by pure emotion," said Andre Bakhos, president of Princeton Financial Group in New Brunswick, New Jersey.
General Electric, another component of the Dow 30, complained that investors were unfairly losing confidence in the industrial giant, saying speculation about its ability to maintain sufficient capital was "overdone." GE shares were little changed, although they have lost around 80 percent of their value during the past year.
The US job market remained quite weak, although the number of workers filing new claims for jobless benefits fell last week. Investors were also awaiting the US governments more comprehensive payrolls data due out on Friday. Same-store sales at US retailers rose 0.3 in February, defying expectations of a 1.2 percent drop.
Consumer spending has suffered as plummeting stock markets and housing prices have eroded household wealth. In an added sign of the strain, a record one in eight US homeowners were behind on their mortgage payments at the end of last year, according to a trade group.
In Asia, Premier Wen Jiabao told parliament Chinas 8 percent growth target this year remained realistic, but he stopped short of any increase to a planned 4 trillion yuan ($585 billion) stimulus package to reignite the worlds third-largest economy.
Prospects of additional Chinese stimulus helped fuel Wednesdays stock market rally, which had ended a five-day losing streak. A survey also showed capital spending by Japanese companies fell at its sharpest pace on record in the final quarter of 2008.