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Dow Jones index in bear market, Bank of England ready to raise interest rates to prop up UK pound, Australian dollar falls further

Wall Street has fallen further into a bear market as interest rates surged after the British pound fell to a record low against the greenback and recession fears have deepened on global markets.

Investors are worried that steep interest rate rises by global central banks could cause a global economic downturn and recession in the US. 

After two weeks of losses, the Dow Jones Industrial Average confirmed it has been in a bear market since early January, when it reached a record high. 

The Dow is down 20.5 per cent from its record close on January 4. 

A bear market sees prolonged price declines, where shares fall 20 per cent or more from their peak. 

The Dow Jones Industrial Average fell 1.1 per cent to 29,261, the Nasdaq fell 0.6 per cent to 10.803, and the S&P 500 index lost 1 per cent to 3,655. 

The S&P 500 index ended at its lowest close for the year.  It entered a bear market in June. 

The Australian share market is set to open higher with the ASX SPI 200 index up 0.3 per cent to 6,483. 

It fell to a three-month low yesterday, dragged down by miners and energy companies. 

The Australian dollar fell further overnight to 64.54 US cents at 7:30am AEST, down 1.1 per cent. 

Real estate and energy stocks lead the losses on the S&P index. 

Despite the global market turmoil, US Federal Reserve officials said their priority remained controlling inflation in North America. 

Yields on US government bonds hit new highs on concerns that central banks will keep raising interest rates to curb high inflation. 

Pound hits record low 

Investor confidence was shaken by dramatic moves in the foreign exchange market as the British pound hit a record low yesterday on worries about the new UK government’s tax cut plan and how it would be paid for. 

British bond prices collapsed as investors worry about how the government will pay for its financial plans. 

Five-year government bond prices saw their joint biggest daily fall since at least 1991, matching Friday’s record plunge. 

The pound fell as much as 5 per cent against the greenback to a record low of $US1.0327 in Asian trade, it pared most of its losses in European trade on hopes of an emergency rate rise by the Bank of England. 

It closed at $US1.069 overnight, falling from $US1.082. 

UK finance minister Kwasi Kwarteng sent sterling and government bonds into freefall on Friday after delivering a mini budget by funding tax cuts with huge increases in government borrowing. 

He issued a statement before the UK market closed, saying he would set out medium term debt cutting plans in late November, along with forecasts from the independent Office for Budget Responsibility on the full scale of government borrowing. 

The Bank of England said it would not hesitate to raise interest rates and said it was monitoring markets “very closely”. 

“The bank is monitoring developments in financial markets very closely in light of the significant repricing of financial assets,” Bank of England governor Andrew Bailey said. 

Last week, it raised interest rates from 1.75 per cent to 2.25 per cent. 

In London, the FTSE 100 index finished steady, up 0.03 per cent to 7,021, the DAX in Germany fell 0.5 per cent to 12,228, and the CAC 40 in Paris fell 0.2 per cent to 5,769.

Oil prices fell $US2 and finished at a nine-month low as the greenback surged. 

Brent crude lost 2.6 per cent to $US83.94, while West Texas crude fell 3 per cent to $US76.34 a barrel. 

While spot gold traded around the lowest in two and a half years on fears of rising interest rates. 

At 7:30am AEST, it was down 1.3 per cent to $US1621.20 an ounce. 

ABC/Reuters

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