Dow falls over 350 points as investors react badly to news that Fed is considering easing back on bond-buying scheme
US stock markets plummeted Thursday amid fears that the Federal Reserve was preparing to scale back its $85bn-a-month stimulus programme.
The Dow closed down 353.95 points at 14758.24, a 2.34% drop and the index's worst fall so far this year.
The selloff follows a press conference on Wednesday at which Fed chairman Ben Bernanke gave his clearest indication yet that he intends to ease off on the so-called quantitative easing (QE) stimulus programme.
Stock markets reacted badly to the news even as Bernanke made clear that the US economy is improving, and that he had no immediate plans to change tack. Bernanke said he would only cut back QE if and when US unemployment falls to 7%. It is currently at 7.6%.
Despite these caveats, the Dow closed down 206 points Wednesday.
Dan Greenhaus, chief strategist at BTIG, said US stock markets had suffered similar periods of turbulence in other periods when it became clear that Fed policy was likely to change. "Stock can't always go up," he said.
"What Ben Bernanke said about the US economy is good. The question for investors is what it means in the immediate future. Markets have been up 11 of the last 12 months so I think this comes at a time when people see an opportunity to take a break after a terrific run," he said.
The rout in the US markets follows a similar selloff in Europe. In London the FTSE 100 index closed down 189 points, or nearly 3%, in its biggest percentage fall since September 2011. The pan-European FTSEurofirst 300 index fell 2.9%. Spain's Ibex finished 2.9% down, Italy's FTSE MIB lost 3.1%, Germany's Dax lost 3% and France's CAC fell 3.3%.
Worries about the Fed easing off on its historic spending spree were compounded by signs of weakness in the Chinese economy, and reports that the International Monetary Fund could halt payments to Greece.
Oil and gold prices also slid, with gold prices dipping below $1,300 a troy ounce for the first time since September 2010.
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