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US Markets Plunge Despite Government Bailout Plan


The Bush administration's proposal to spend as much as $700 billion on the bad housing-related loans held by financial institutions failed to calm jittery financial markets on Monday. Asian stocks fell in early trading Tuesday, as investors in South Korea and Australia echoed the concerns of their American counterparts - that the proposed U.S financial rescue plan will not be enough to revive the world's biggest economy. VOA's Barry Wood has more.

The Standard and Poor's index of 500 U.S. stocks fell nearly four percent Monday, with much of the decline occurring in the final hour of trading. The Dow Jones industrials lost nearly 373 points, erasing about half of the gains of the previous two trading sessions.

There was volatility in other markets as well. Gold rose more than $31, or 5.1 percent, to $905 an ounce. Oil closed $18 a barrel higher. The U.S. dollar, which had been rising from very low levels during the past two months, lost more against the euro than on Monday than at any time since the common currency was introduced nine years ago. The dollar fell 2.4 percent to $1.4804.

Analysts say there is concern in the markets that the government's huge bailout of financial institutions will slow or perhaps derail economic growth.

"I think, in fact, when you look back over the past two weeks, you have to presume that the risk of recession has actually gone up," said Keith Wirtz, the chief investment officer at Fifth Third Asset Management. "You've got major restructuring going on in the financial sector and you've got the deleveraging in the credit markets, those are huge headwinds to the economy. We may already be in recession."

So far this year, the U.S. economy has defied predictions of recession. Mainly because of a fiscal stimulus of up to $600 that was sent to taxpayers in the second quarter, the U.S. economy has continued to register modest economic growth.

Most forecasts say the U.S. economy for all of 2008 is likely to register sluggish growth of no more than five-tenths of one percent. A recession is defined as two consecutive quarters of negative growth.

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