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Markets

Dow suffers worst fall since 1987 despite Fed injection

Circuit breakers triggered again as coronavirus fear grows

A trader on the floor of the New York Stock Exchange.   © Reuters

NEW YORK -- U.S. stocks tumbled almost 10% on Thursday in the biggest single-day drop since Black Monday in 1987 on fears of a global slowdown due to the new coronavirus.

The market experienced a brief bounce in the afternoon after the Federal Reserve Bank of New York moved to vastly expand support for the money market, only to crash deeper toward the end of trading.

The Dow Jones Industrial Average ended the day down 9.9%, while the broader S&P 500 dropped 9.5%.

The Dow's drop was larger than the 7.9% fall seen on Oct. 15, 2008, during the financial crisis, and marked the biggest loss since Black Monday's 22.6%. The 2,350-point decline was its biggest in history.

The benchmark has now fallen more than 8,300 points from an all-time high reached on Feb. 12 -- a 28%-plus drop.

The New York Fed's announced that it will broaden purchases of U.S. government debt to medium- and long-term maturities and add new repo operations, which will provide more than $1.5 trillion in short-term liquidity this week.

The bank will offer $500 billion apiece in three- and one-month repo operations weekly until mid-April. Some in the markets saw the bond-buying action as a de facto resumption of quantitative easing.

But the bounce did not last, and anxiety over U.S. President Donald Trump's decision to ban travel from Europe for a month clouded sentiment in the market.

A trader caught up in Wall Street's sell-off on March 12.   © Reuters

The Fed's actions came after the S&P 500 index hit the 7% decline needed to halt trading for 15 minutes under the market's circuit breaker rule.

Speaking to reporters at the White House before the Fed move, Trump said he expected U.S. stocks would "bounce back very big" at the "right time" from their drop into bear market territory. The president's comments appeared to do little to reassure the market, however.

Thursday's crash follows a turbulent day in Asian trading after Trump announced a ban on travel from Europe. Circuit breakers were triggered after 10% plunges in Thailand and the Philippines and a 5% drop in Indonesia.

Benchmark stock indices in France and Italy fell by as much as 11% at one point. In Europe, Germany's DAX fell 12%, its steepest decline since October 1989, to close at a four-year low. Automaker Daimler and Deutsche Bank each tumbled 18%.

France's CAC 40 closed down 12%, its lowest since June 2016. The FTSE MIB index in Italy, which imposed a nationwide lockdown this week, and Spain's IBEX 35 index plummeted 17% and 14%, respectively, to levels not seen since 2012.

U.S. stocks officially entered bear market territory Wednesday after the Dow slumped more than 20% in just a month from its Feb. 12 high of 29,551.

The U.S. circuit breaker was triggered on Monday for the first time since the rule was amended in 2013, based on the experience of the 2010 flash crash.

After the 2008 financial crisis, monetary easing and Chinese fiscal stimulus buoyed equity markets following the initial crash. Since then, policymakers have moved to shore up stocks whenever they look set for a serious fall.

But interest rate cuts can only do so much to boost economic activity in a pandemic, where the main problem is consumers being unwilling to go out and spend money. Investors are pinning their hopes on fiscal stimulus, such as the spending package proposed by U.K. Prime Minister Boris Johnson's government this week.

"It would just be pain relief," said Masayuki Kichikawa, chief macro strategist at Sumitomo Mitsui DS Asset Management of such measures.

Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities, said a Japanese government proposal for cash handouts "would be unlikely to lift the economy as a whole" because only part of the households would qualify.

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