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Financial markets around the world took
investors on a shaky ride this week.
On Tuesday, concerns about the health of Chinese
markets and the United States economy helped
send investors on a flight from risk. A selloff
that began on the Shanghai stock market quickly
spread to Europe and the United States. Markets
in Africa and Latin America also suffered
losses.
China's main stock market in Shanghai fell nine
percent Tuesday. It was the worst drop in
Chinese stocks in ten years. Investors hurried
to sell their stocks as concern spread that the
government might raise interest rates. There
were also unconfirmed reports of a possible new
tax on capital gains. Chinese officials denied
those reports.
On Wall Street, the Dow Jones Industrial Average
of thirty major stocks dropped four hundred
sixteen points, more than three percent. That
was a loss about six billion dollars of
shareholder value on the New York Stock
Exchange. It was the biggest one-day drop since
the first day of trading after the terrorist
attacks in September of two thousand one.
But at one point Tuesday, after a month of
moving up, the Dow was down as much as five
hundred forty-six points.
The intense trading even overloaded the systems
that continually compute the Dow Jones average.
Traders had the wrong information for seventy
minutes. But the Dow Jones company says it does
not believe that the delay worsened the drop in
the market.
Investors may have also been influenced by
comments from Alan Greenspan. On Monday, the
former chairman of the Federal Reserve said a
recession was possible in the United States by
the end of the year. Later, though, he said a
recession is possible but not probable.
The current Federal Reserve chairman told
Congress that the markets in the United States
seemed to be working well. Ben Bernanke said the
central bank still expects "moderate growth" in
the economy this year. His comments Wednesday
seemed to help calm the markets.
A better-than-expected manufacturing report on
Thursday also helped stock prices, after an
early drop on Wall Street. Another economic
report had been blamed as one of the causes of
Tuesday's big selloff.
On Tuesday the Commerce Department reported the
biggest drop in three months in orders for
durable goods in January. These are
higher-priced goods designed to last three years
or more, like cars and computers.
There was also concern in the markets this week
about companies that deal in "subprime" home
loans. These loans for people with weak credit
histories have been popular in recent years. But
many people are now having trouble paying them
back.
All together, it was one of the worst weeks in
several years for financial markets that have
recently hit new highs. Investors hoped that
their shaky ride was nothing more than a normal
price correction.
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