US and European shares ended at five-and-a-half-year closing lows on Wednesday as a record drop in US consumer prices and more dismal housing data stoked recession fears, driving a flight to safety. Doubts about the prospect of a US auto industry rescue added to America's weak economic outlook, further weighing on stocks and helping push the dollar down against the yen. All three major US indexes - the Dow, S&P 500 and Nasdaq - posted their lowest closes since early 2003, while MSCI's all-country world index also slipped to lows last seen more than five years ago. The S&P and Nasdaq fell more than 6 percent, the Dow shed more than 5 percent and the MSCI index lost about 4.7 percent. All 30 components of the Dow closed lower, while in the S&P only seven stocks rose out of the index's 500 companies. Shares of the three largest US banks - JPMorgan Chase, Citigroup, and Bank of America - posted double digit percentage drops to multiyear lows on expectations that a worsening economy and credit conditions will weigh heavily on them. A slump in new-home building to fresh lows also helped drive up risk aversion and the price of government debt. “There is still a heightened preference for quality, safety and security. Cash is coming out of equities and other riskier assets and into the Treasury securities market, particularly the back end,” said William Sullivan, chief economist with JVB Financial Group in Boca Raton, Florida. Markets are pricing in further rate cuts, with the US Federal Reserve seen cutting another 50 basis points in December and figures derived from Eonia rates fully pricing in 75 basis points of European Central Bank cuts next month. With prospects for a US auto industry rescue diminishing, shares of General Motors fell to a 66-year low before paring losses to close down 9.7 percent, while Ford plunged 25 percent. “There's just no catalyst to buy stocks and for the kind of confidence we need for the market to have any sustainable progress,” said Alan Lancz, president of Alan B. Lancz & Associates Inc, an investment advisory firm in Toledo, Ohio. The rout was broad and deep. Declining shares on the New York Stock Exchange outnumbered advancers by 16 to 1, while 941 issues - more than 1 out of 4 issues that traded - set 52-week lows. The benchmark MSCI US REIT index fell more than 13 percent, while the Dow Jones US Home Builders index was off almost 11 percent. The Dow Jones industrial average closed down 427.47 points, or 5.07 percent, at 7,997.28. The Standard & Poor's 500 Index was down 52.54 points, or 6.12 percent, at 806.58. The Nasdaq Composite Index was down 96.85 points, or 6.53 percent, at 1,386.42. In Europe, banks and commodity shares led the market lower. The FTSEurofirst 300 index of top European shares closed 4 percent lower at 811.99 points, and is now down about 45 percent this year. Recession seen in 2009 The US economy could grow as much as 1.1 percent in 2009 or contract by 0.2 percent, the Federal Reserve said Wednesday, slashing its previous forecast. In its latest forecasts published in July, the Fed predicted gross domestic product (GDP) growth in a range of 2.0-2.8 percent. Since then, a resurgence in the global financial crisis after the collapse of investment bank Lehman Brothers in mid-September has battered the world's biggest economy. For all of 2008, the Fed estimated zero to 0.3 percent growth in GDP, down from previous estimate of 1.0-1.6 percent. The world's largest economy was expected to recover in 2010 to a growth rate of 2.3-3.2 percent. The forecasts were published in the minutes of the last meeting of the Federal Open Market Committee on Oct. 28
