Global markets fall, US markets recover, leaving investors jittery

Global markets fell for the eighth day on Friday, while the US markets recovered from Thursday's plummet. As global markets drop, fear grows that the global economy could slip into another recession.

Thanassis Stavrakis / AP
An employee of the Greek Stock Exchange passes in front of chart with the stock prices in Athens, Friday, Aug. 5, 2011. The eurozone's debt crisis battered global markets once again Friday, challenging vacationing European leaders to find a way to keep the turmoil from pushing Spain and Italy to a financial collapse that would hit an already-waning global recovery.

World stocks fell for an eighth day but U.S. stocks gained ground Friday after a dizzying descent that wiped $2.5 trillion off the value of global equities this week and brought back memories of the 2008 financial crisis.

Wall Street stocks recovered from losses of more than 2 percent to trade mostly higher in the afternoon, a day after indexes posted their worst losses in two years. The MSCI's All-Country World Index pared its losses, but was still down 1 percent on the day.

``What you had was a crisis-of-confidence move down, unjustified by the fundamentals,'' said Jeffrey Saut, chief investment strategist of Raymond James Financial, in St. Petersburg, Florida. ``It's like pushing down on a spring. You can only press down so far.''

World leaders moved to address the turmoil, which has been driven by fears the global economy is slipping back into recession and by the inability of policymakers in Europe to extinguish the debt crisis engulfing the region.

As frustration grows at what investors see as the European Central Bank's ineffectual response to the crisis, sources said the bank is demanding that Italy commit to fast-track specific welfare reforms and a constitutional amendment enshrining a fiscal rule before it will buy Italian bonds.

Jittery markets took the comments as a sign a move may be near. The euro jumped to a session high against the dollar and helped reverse the greenback's slump against the Swiss franc after it hit a record low on safe-haven buying.

The euro was at session highs at $1.4293, up 1.3 percent.

China and Japan called for global cooperation. French President Nicolas Sarkozy was due to discuss the financial markets with German Chancellor Angela Merkel and Spanish Prime Minister Jose Luis Rodriguez Zapatero.

Brazilian Finance Minister Guido Mantega said the world economy ``is in a situation of stress'' and South American nations must work together to create mechanisms to protect their economies from turmoil.

Rumors circulated that ratings agency Standard & Poor's would downgrade the U.S. debt rating after the close, but S&P said it would not comment on them. News of stronger-than-expected U.S. jobs growth in July relieved some of the financial markets' worst fears, but that was not enough to spur sustained buying after an early bounce.

U.S. Treasury debt prices fell after the data, reversing some of the gains made in Thursday's panic of risk-averse trading. The 10-year Treasury notelost 1-5/32, to yield 2.54 percent, up from 2.41 percent at Thursday's close.

The Dow Jones industrial average was up 101.83 points, or 0.89 percent, at 11,485.51. The Standard & Poor's 500 Indexwas up 6.44 points, or 0.54 percent, at 1,206.51. The Nasdaq Composite Indexwas down 8.74 points, or 0.34 percent, at 2,547.65.

European stocksfell 1.8 percent to end at 975.02, their biggest weekly decline in nearly three years after hitting their lowest in a year.

Industrial commodities were also hit. Three-month copper fell 2.6 percent to $9,114 a tonne, the lowest since June 29. It lost 1.9 percent in the last session. The Reuters-Jefferies CRB index, a global commodities benchmark, fell to a seven-month low as raw materials markets experienced one of their biggest sell-offs since the financial crisis.

All eyes on Europe

Apart from signs that the U.S. and global economies are weakening despite record low interest rates and the pumping of liquidity into the system, the focus was clearly on Europe, where bond yields in Spain and Italy have been blowing out, threatening the same kind of refinancing problems that have already slammed Greece, Ireland and Portugal.

The European Central Bank disappointed investors Thursday by buying Irish and Portuguese bonds but not Italian or Spanish debt.

``Would the ECB please get serious?'' Berenberg private bank said in a note. ``We need a circuit breaker to stop the vicious circle in which fear feeds on fear.'' Jane Foley, senior currency strategist at Rabobank, said, ''The Swiss National Bank is caught between a rock and a hard place. It's difficult to see the franc being anything but well bid in the current environment.''

The ECB bought Portuguese and Irish government bonds, slightly easing pressure on Italian and other euro-zone peripheral debt, which had earlier offered euro-era high premiums over less risky Germany.

But Italian 10-year government bond yields rose above their Spanish equivalent.

Italy has emerged as the market's major concern after a rescue deal that was intended to stop the spread of the crisis failed to convince investors it had the firepower to ease pressure on the vast Italian bond market.

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