World stock markets slumped again this afternoon, with new worries about Europe's debt problems as France had to deny rumours that it could be next country to lose its top AAA credit rating.
French banks led European markets lower as shares of Société Générale plummeted nearly 20% at one stage, before it rejected market rumours about its financial position. It eventually closed down 14.7%.
Shares in Paris and Frankfurt closed down more than 5%, while London's FTSE lost 3%. Dublin's ISEQ fell 2.3%. The Dow closed down 4.6%, the S&P 4.4% and the Nasdaq 4.1%.
The turnaround followed earlier gains prompted by the US Federal Reserve's promise last night that it would keep interest rates low for another two years.
SocGen was hit by a rumour - later officially denied - that France could be next to lose its top credit rating. Such a move would have had a knock-on effect on French banks.
SocGen also mentioned on its website an apology by the Mail on Sunday for a story that said the bank was in a 'perilous' state and possibly on the 'brink of disaster'.
An official at French President Nicolas Sarkozy also denied speculation that the bank had been involved in an earlier emergency meeting with key government ministers and the head of the French central bank.
An announcement from Greece also led to uncertainty about its rescue plan and the situation for private lenders, including many European banks. Greece said today that its exchange of bonds under the debt rescue might include instruments with a life stretching slightly beyond the target date of 2020, and that the swap procedures had not yet begun.
French banks and insurers have agreed to reschedule €15 billion worth of Greek debt as part of an EU rescue package to stabilise the euro zone.
Société Générale announced last week its second quarter net profit slumped 31% to €747m, largely because of its exposure to debt-stricken Greece. The bank has not commented on the share price fall.
Meanwhile, on bond markets, pressure on Italy and Spain continued to ease after the ECB began buying their bonds in the market earlier this week, while the interest rate demanded to hold Irish debt also fell.
The yield on 10-year Irish bonds dropped below 10% last night for the first time since April, and fell further to 9.71% this evening. Italy's 10-year yield was 5.125%, while Spain's fell to just under 5.05%.
Fed rates pledge, but no QE3
The Fed pledged last night to hold interest rates near zero for two more years to help an economy facing increased risks of stalling and amid recent turmoil on global financial markets.
But the US central bank offered no successor to the $600 billion 'QE2' stimulus programme that wound up in June although it did say it was reviewing available tools to boost a slowing economy.
Meeting as worries grew of a new US recession, the Fed's policy board admitted growth had been 'considerably slower' than expected so far this year. The Fed maintained its key interest rate at the record low 0.0-0.25% - in place since December 2008 - and vowed to keep 'exceptionally low' rates at least until the middle of 2013.
It added after a one-day meeting that it now expects growth at a 'somewhat slower pace' over the coming quarters than it had estimated in June while 'downside risks to the economic outlook have increased'.
