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While you were sleeping: Far from out of the woods

While you were sleeping: Far from out of the woods

(BusinessDesk) August 26 - Stocks on Wall Street and in Europe were back in the red, despite a promising start on Warren Buffett’s US$5 billion vote of confidence in Bank of America, after U.S. jobs data reinforced that the labour market remained in dire straits.

In late trading, the Dow Jones industrial average dropped 1.08%, the Standard & Poor's 500 Index shed 1.05% and the Nasdaq Composite Index fell 1.36%.

Stocks had started the day in the green after Warren Buffett's Berkshire Hathaway would be taking a US$5 billion stake in the beleaguered bank. The stock received a boost, climbing more than 25% earlier in the session. Most recently, it was up 10%.

Then data showing that claims for U.S. unemployment unexpectedly rose last week ruined the mood. Jobless claims rose by 5,000 to 417,000 in the week ended August. 20, Labor Department figures showed. Economists had projected a drop to 405,000, according to a median forecast of a Bloomberg News survey.

Adding to the gloom, Nobel-prize winning economist Joseph Stiglitz told a conference in Lindau, Germany today that the chances of the U.S. economy going back into recession were “very high.”

“We’re not out of the woods and the market is reflecting that,” Paul Zemsky, the New York-based head of asset allocation for ING Investment Management, told Bloomberg News.

“The European situation is still a mess. Sometimes these markets get hit because they are the most liquid. If you want to dump risk quickly in Europe, shorting Germany is probably the best way to do it. The market bounced over the last few days because we were so oversold, but the economic fundamentals did not change.”

German shares tanked amid speculation that the country would impose a ban on short sales, joining France, Spain and Italy in temporarily prohibiting bets that the value of a stock is going to fall.

The DAX Index recovered near the end of trading, closing 1.7% weaker. The index earlier fell as much as 5%. The losses were pared after the German finance ministry denied any plans to ban short sales.

The Stoxx Europe 600 Index dropped 1.2%.

Today’s slide in equities on both sides of the Atlantic bolstered the appeal of gold again.

Gold futures for December delivery gained US$5.90 to settle at US$1,763.20 at 2.03pm on the Comex in New York.

“Sellers tried to force gold under US$1,700 and couldn’t, so the funds came back,” Frank McGhee, the head dealer at Integrated Brokerage Services in Chicago, told Bloomberg. “This is long-term buying against the equities.”

Apple Inc investors held their cool after yesterday’s news that Steve Jobs has resigned from his duties as CEO. The stock was down about 1%.


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