London shares followed other world markets down as new action from the US Federal Reserve was not enough to counter their downbeat message that the economy faces ‘significant downside risks’.
As the Fed delivered a more gloomy message
than it had just a month ago, the Dow Jones industrial average dropped 284 points, or 2.49%, to
11,125, while the Standard & Poor's 500 Index
lost 35 points, or 2.94%, to 1,167.
The Fed did however deliver ‘Operation Twist’, broadly as expected. The central bank will buy $400 billion
of long-dated government bonds (treasuries).
It will do this using the proceeds of sales of $400
billion of treasuries with remaining maturities
of three months or less.
The move is intended not only to boost the economy
in the near-term but to keep long term interest rates low, boosting the housing sector.
But with interest rates already near rock-bottom, economists cast doubts about the impact
this move would have.
‘We do not believe that
it is sufficient, either in light of performance
of the US economy, domestic political paralysis,
or indeed in the context of severe challenges
facing the eurozone,’commented Chetan
Seth of Samsung Securities.