• Barack Obama's rejection of GM/Chrysler plans adds to fears General Motors crisis helps end recent rally on stockmarkets. Photograph: AP Global stockmarkets tumbled today as fears that the US car industry might go bust crushed hopes that the economic crisis might be easing. Shares fell in Europe, on Wall Street and across Asia, ending their recent rally, after Barack Obama's administration rejected turnaround plans from ailing carmakers General Motors and Chrysler. Fears that this week's G20 summit in London might not deliver a rescue plan for the world economy also added to the gloom, as did the collapse of a Spanish bank. The US government's taskforce for the auto industry shocked investors overnight with the suggestion that a quick surgical bankruptcy might be the best chance for the companies to survive. Analysts said that Barack Obama's decision to force out the GM chief executive, Rick Wagoner, showed that the US government was losing patience with struggling businesses. "Not every industry will be saved," warned Manus Cranny of MF Global Spreads. "The car industry is on very thin ice and Washington's toleration of anachronistic business practices and sluggish change management is nearing an end." In London, the FTSE 100 index dropped by as much as 2.8%, shedding 109.81 points to fall to 3789.04. In New York, the Dow Jones index fell by almost 200 points at the open to 7,560. GM shares plunged 25% in early trading. The mood across Europe was also bleak, with the French CAC market dropping by 2.75%, and Germany's DAX falling 3.5%. Carmakers were among the biggest losers: Daimler was down 6.4%, Fiat lost 4.6% and BMW tumbled 5.7%. "A failure of General Motors would be negative for the other carmakers, as it would drag along a large number of suppliers," said Heino Ruland of Ruland Research. Petra Kerssenbrock, an analyst at Commerzbank, said today's losses showed the stockmarket rally seen during the last three weeks was not sustainable, and that the crisis was far from over. "We saw a decent bear market rally, but this is still a bear market," she said. "Taking profits is the name of the game today." The recent share price rises meant that several indices, including the Dow Jones and the Nikkei, rose to 20% above their lowest points during the crisis. This is the classic definition of a "bull market", but many equity analysts refused to believe that a real turning point in the crisis had been reached. In Spain, there was alarm as the Madrid government rode to the rescue of the regional savings bank Caja Castilla La Mancha - the country's first banking bailout since the financial crisis began. The World Bank forecast today that Russia's economy would shrink by 4.5% this year, a sharp reversal of its previous 3% growth forecast made in November which assumed higher oil prices. "As the crisis continues to spread to the real economy around the world, initial expectations that Russia and other countries will recover fast are no longer likely," the World Bank said. Overnight, there were sharp declines in Asian stockmarkets, with Tokyo's Nikkei tumbling 4.5% to 8236.08, a fall of 390.89 points. The fall erased more than half of the Nikkei's 8.6% gain last week. Hong Kong's Hang Seng lost 4.8% to 13,440.72 while Singapore's Straits Times index fell 4.68% to 1663.92. "The fact that there's still a chance of GM going bankrupt is shocking," said Takashi Ushio of Marusan Securities. The pound fell on continued worries over the UK economy, after government figures showed on Friday that Britain sank even deeper into recession in the fourth quarter of last year than first thought. Sterling traded down 1.1% against the dollar at $1.4167.Car industry fears send stockmarkets into reverse
• Dow Jones index falls almost 200 points in early trading
• Alarm in Spain as regional savings bank needs rescuing
Monday, 30 March 2009
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