US shares plunge to five-year low

Investors are worried about the extent of the slowdown

Wall Street plunged more than 5% on Wednesday to its lowest level in over five years on rising economic worries.

October consumer prices fell 1% on the month before - the biggest such fall in 61 years, which has reinforced fears of rapid slowdown.

Adding to the gloom, the US Federal Reserve slashed its economic growth forecasts for 2009.

The Fed is expected to cut its key interest rate to 0.5% in December - it cut rates twice in October to 1%.

Economists say that this rapid fall in consumer prices has given the US central bank the room it needs to cut interest rates to battle the economic slump.

"It's certainly the Fed confirming what the market has realised - that the recession is here," said Bruce Zaro, of Delta Global Advisors in Boston.

At the close, the Dow Jones average was down 427 points to close at 7,997.28, below the 8,000-level for the first time since 2003.

The reduction in consumer prices also reflected a significant decline in energy prices - fuel costs fell for a third month in a row.

There was also uncertainty about the fate of the "Big Three" US carmakers - GM, Ford and Chrysler.

Chief executives from the three firms have been on Capitol Hill this week asking for an urgent $25bn (£16.6bn) bail-out package as a "bridge" to help them survive.

The car firms say they need the aid quickly, otherwise they risk collapsing - with the loss of millions of jobs throughout America.

Republicans and the White House are opposed to aid for the car industry coming out of the $700bn bank bail-out. Politicians are now looking to find a compromise plan to aid the industry.

Carmakers were among the biggest fallers, with GM shares down 15% to a 66-year low, while rival Ford slumped to a 26-year low.

Investors are worried about the possibility that there will be no quick proposal from Congress to resolve the problems hounding the industry before the current law-making session draws to a close.

US car executives have spent two days this week on Capitol Hill pleading their case for the $25bn aid package to both Senate and House committees.

Falling shares

Prospects for a bail-out have been uncertain but politicians have begun to talk about crafting some compromise deal.

Investors are concerned about how a possible bankruptcy among US carmakers could further hurt an already fragile economy.

Meanwhile, financial shares were hit by persistent worries about the impact that the contracting economy will have on banks. Bank of America dropped 14% and JP Morgan Chase was 11% lower.

Citigroup shares tumbled 23% to a new 13-year low. This week the firm announced it was shedding 53,000 more jobs. Its shares have lost 53% of their value in November.

William Larkin, of Cabot Money Management, Salem, Massachusetts, said of Citi: "People are looking at their business model and wondering how on earth they're going to be able to survive in this."

Earlier European markets closed with losses of more than 4%.