Financial markets stage rally

European markets were in negative territory for much of this morning as investors continued to shy away from stocks. However, many indices rebounded this afternoon as US stocks opened up higher.

The Dublin market was down by over 2.5 per cent earlier today but bounced back later in the day and was up by 2.7 per cent at close.

The FTSE 100 rose  1.9 per cent at the close in London after plunging as much as 5.5 per cent earlier. The index has still fallen 15 per cent from this year's high in February.

France's CAC 40 increased 1.6 per cent while Germany's DAX Index slipped 0.1 per cent.

Wall Street opened higher this afternoon with the Dow Jones up 0.98 per cent, the Standard & Poor's 500 index up 1.12 per cent and the Nasdaq up 1.54 per cent.

Earlier today, Japan's Nikkei  closed down 1.7 per cent today, having trimmed losses on bargain hunting after the index tumbled more than 4 per cent in the wake of a plunge on Wall Street and a downgrade of US sovereign debt. South Korea's Kospi closed down 3.64 per cent and Hong Kong's Hang Seng declined 2.8 per cent.

The mood was exacerbated by news that China's consumer price inflation rose to 6.5 per cent in July from June's 6.4 per cent, topping market forecasts for 6.3 per cent and fuelling fears of more tightening in the world's second-largest economy.

The cost of borrowing by Italy and Spain fell again today as the ECB bond-buying programme continues. The yield on 10-year Italian bonds has dropped to 5.11 per cent, while the Spanish rate has declined to just over 5 per cent.

Ireland's 10-year bond yield was at 9.90 per cent after falling below the 10 per cent mark yesterday for the first time since April.

Gold hit a record $1,778 an ounce today in its biggest three-day rally since the depths of the financial crisis in late 2008, and its value has risen by about 8 per cent this month as investors seek safer havens.

Oil slumped to its lowest level in six months today, briefly dipping below $100 on mounting worries. It fell by as much as $5 to $98.74 a barrel but has since recovered to $103.14.

Yesterday, world markets wrote $2.5 trillion (€1.75 trillion) off the value of global stocks.

A sell-off of banking stocks led US markets downwards, resulting in the Standard & Poor’s 500 Index worst day since December 2008, with every stock in the benchmark index ending in negative territory.Bank of America closed down 20 per cent, while Citigroup fell 16 per cent.

The fallout from the withdrawal of the top AAA credit rating from the United States pushed world stocks to their lowest level in almost a year. Investors moved money to safer havens such as gold and Swiss francs.

The sell-off of shares has wiped $3.4 trillion off the value of world stock markets since July 29th, the equivalent of the gross domestic output of Germany.

Stocks declined after Standard and Poor’s followed its downgrade of the US last Friday by cutting the ratings of state-backed Fannie Mae, Freddie Mac and other lenders with a “direct reliance on the US government”.

US president Barack Obama yesterday blamed S&P's downgrade on Washington political gridlock and said he would offer recommendations on how to reduce federal deficits. “No matter what some ratings agency will say, we will always have a triple-A rating," he said.