(MENAFN - Khaleej Times) Gulf and Asian bourses went into a surprise recovery mode on Wednesday but stock markets in the US and Europe fell sharply after a brief respite on aggravating concerns about the worsening state of the world economy.
On Tuesday and early Wednesday, markets around the world, including the GCC, rebounded after the US Fed pledged to keep interest rates at the current ultra-low level until mid-2013. But a sudden reversal early on Wednesday in Europe and the US bourses halted a strong rally with the exception of the GCC and Asian markets.
"Investor confidence has been badly shaken and risk aversion is at its worst as the specter of a double dip recession looms at large across the globe especially after the battering received by the US, the world's biggest economy, with humiliating credit downgrade by S&P's," a Dubai based analyst said.
Economists now believe worry over another recession is at least partially justified. "However, in the event of a contraction, its severity would not be as big as the one that afflicted the world in 2008," the analyst pointed out.
Ruling out the prospects of an acute recession, he argued that the continuing uptick in corporate profits is a silver lining. A recent Goldman Sachs report stated that 46 per cent of companies in the Standard & Poor's 500-stock index had better-than expected earnings results for the second quarter, with earnings on pace to grow 15 per cent from a year ago.
On Wednesday, the benchmark Dubai Financial Market index rose the most in almost a month, rising 2.2 per cent, or 31 points in the first 30 minutes of trading.
Abu Dhabi shares opened in the green with the general index standing 0.72 per cent up after 45 minutes of trading at 2,596.23 points.
Emaar rose the most since August 4 to Dh2.79. Dubai Islamic climbed 2.1 per cent, the most since July 31, to Dh1.99. Abu Dhabi National Oil Company surged 4.3 per cent to Dh1.22.
Qatar's QE Index climbed 0.7 per cent. Kuwait's gauge increased 0.3 per cent and Bahrain's BB All Share Index gained 0.6 per cent. Saudi Arabia's Tadawul All Share Index climbed 0.5 per cent. Oman's MSM 30 Index decreased 0.6 per cent. Muscat Securities Market in Oman also opened positively, increasing 0.87 per cent to 5,945.23 points after it shed 2.42 per cent of its value on Tuesday.
The Dow Jones industrial average fell 413 points, or 3.7 per cent, to 10,827 in morning trading on Wednesday. That erased nearly all of its 429-point gain from Tuesday, when the Federal Reserve pledged to keep its key interest rate at nearly zero into 2013, analysts said.
The broader S&P 500 fell 2.81 per cent to 1,139.55, while the tech-heavy Nasdaq lost 3.11 per cent to 2,405.43.
In afternoon trading, London's benchmark FTSE 100 index was down 0.96 per cent, also hit by news that the Bank of England has downgraded its 2011 British economic growth forecast. French banking shares plunged on renewed market jitters over their exposure to Greek debt. Frankfurt dropped more than two per cent before regaining to a 1.50 per cent fall and Paris' CAC 40 shed 2.38 per cent to 3,104.44 points while in Milan the FTSE Mib fell 4.42 per cent to 15,027 points.
Stock markets across Asia closed in positive territory Wednesday.
Shanghai Composite Index rose 0.9 per cent to 2,549.18 and the smaller Shenzhen Composite Index gained 1.4 per cent. Indexes in Taiwan and India also gained. Hong Kong's Hang Seng jumped 2.3 per cent to 19,783.67.
Japan's Nikkei 225 index climbed 1.1 per cent to close at 9,038.74 as the dollar headed near to post World War II lows against the yen. By mid-afternoon London time, the dollar was 0.9 per cent lower at 76.40 yen.
Meanwhile, the euro was down 1.3 per cent at 1.4185.
In the oil markets, prices fell from earlier highs as stock markets turned lower again. Benchmark oil for September delivery was up 1.78 to 81.25 a barrel. Earlier oil prices had risen to 82.