Interest rate cut fails to stop Dow diving

The New York stock exchange plunged at the opening of trading today despite a last-minute interest rate cut by the US central bank.

The Dow Jones industrials was down more than 300 points as investors fearing a recession in the United States failed to be reassured.

US markets joined stock exchanges around the globe that have fallen precipitously in recent days amid concerns that a downturn might spread around the world.

The Federal Bank’s decision to cut its federal funds rate to 3.50% and the discount rate, the interest it charges to lend directly to banks, came a week before its regularly scheduled meeting, a sign that it recognised the seriousness of the world financial situation.

In the opening minutes of trading, the Dow was down 346 at the 11,753 level. It last was below 12,000 in March 2007.

It was the first time the Fed has altered the target federal funds rate between scheduled meetings since the markets reopened after the September 11 attacks.

The cut was the biggest one-day rate move by the Fed since it lowered rates by one per cent in December 1991, when the country was trying to emerge from recession.

The Fed said in a statement that it took the steps to address a “weakening of the economic outlook” and “increasing downside risks to growth.”

The bank also said it will act in a timely way to address future risks.

“They seemed to react to the markets rather than anticipate the markets, but they did the right thing,” said economist Edward Yardeni.

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