Wall Street got off to another volatile start on Wednesday, plunging deeply as the market opened before recovering much of the lost ground in morning trading.
Investors remained unsettled about the possibility of a recession, with the three main stock indexes lingering in the red a day after the Federal Reserve surprised investors — and stemmed a sell-off — with an aggressive unscheduled interest rate cut.
After diving nearly 250 points in the opening minutes, the Dow Jones industrial average came back to nearly even in the first hour, then fell back again. At 10:45 a.m., it was at 11,845.35, off 125.84, or 1 percent. The Standard & Poor’s 500-stock index showed a comparable decline.
Technology stocks took a harder hit after Motorola and Apple announced disappointing earnings forecasts, sending the tech-heavy Nasdaq composite index down 1.6 percent. Motorola’s shares were off 15 percent, and Apple’s were down 12 percent.
The declines on Wall Street came after another steep sell-off in European stock markets, which were disappointed after the head of the European Central Bank dampened investors’ hopes that the bank would follow the Fed’s lead in cutting interest rates.
Global stocks remained highly volatile a day after the Fed’s emergency interest rate cut on Tuesday. Asian shares gained sharply after a two-day mauling, and many European markets opened with modest gains, in part on hopes for a rate cut in Europe. But the chief European central banker, Jean-Claude Trichet, indicated in Brussels that no monetary easing was in the cards.
“In demanding times of significant market correction and turbulences, it is the responsibility of the central bank to solidly anchor inflation expectations to avoid additional volatility in already highly volatile markets,” Mr. Trichet told the European parliament, according to Reuters.
Mr. Trichet’s remarks, combined with signals from the Bank of England, the Bank of Japan and others that they intended to hold rates steady, sent major European indexes sharply lower, and overnight trading in American index futures signaled that Wall Street would open lower as well.
In mid-afternoon trading, the CAC 40 in Paris and the DAX 30 in Frankfurt were down 3.5 percent and the FTSE 100 in London was off 1.2 percent.
Eric Chaney, chief economist for Europe at Morgan Stanley in London, said the market was “impatient” for a European rate cut, but that Mr. Trichet’s comments were not quite as hawkish as some seemed to think.
“The E.C.B. had a tightening bias previously,” Mr. Chaney said, but “Trichet left open the possibility of a move toward a neutral bias.”
Even so, he said, European investors were unlikely to get any short-term relief from the bank, as “news from the real economy in Europe is very good,” and “we would have to see some bad news from the real economy rather than the markets,” before policy makers cut rates there.
Some traders questioned whether the Fed itself had overreacted.
“The Fed rate cut was both bigger and earlier than people expected,” said Manuel Martin, an equity strategist at WGZ Bank in Frankfurt. “Now people are starting to ask, ‘Is the U.S. economy really that bad off?’ ”
The strong rises on Asian indexes Wednesday reflected buying by speculators to cover short positions, and a sense that shares in the region had fallen more than was justified. Hong Kong’s Hang Seng index, which experienced the biggest drops in Asia this month, led the region’s rebound, soaring 11 percent on Wednesday after the central bank there matched the Fed’s rate cut — an expected move, since the Hong Kong dollar is pegged to the United States dollar.
In China, the CSI 300 index rose 4.7 percent; in Japan, the Nikkei 225 gained 2 percent; in India, the Sensex, another of the biggest losers in the past two days, closed 5.6 percent higher on Wednesday. The Australian stock markets halted a 12-day losing streak.
But the gains on Asian markets were not big enough to erase the losses suffered there in recent days, as worries about the possibility of a crippling recession in the United States swept the globe.
“The system which supported the U.S. credit markets has collapsed,” said Yuuki Sakurai, director and general manager of the financial and investment planning department at Fukoku Mutual Life Insurance in Tokyo. “Merely easing rates will not solve the root problem,” which was that the problems in the mortgage market had upset “standard measures of investment.”
Larry Jones, chief investment officer at Nedgroup Investments, said, “The basic U.S. economic problems are not over, and a lot of them are ahead of us.”
The recent nosedive in Asian markets shows that even if the fast-growing economies of Asia are able to avoid a slowdown from the problems in the United States, the region’s high-flying stock markets will not, he said.
Central banks in Asia faced the question of whether to follow America’s lead on interest rates or Europe’s.
“You have to stay in tune with the developments with the rest of the world,” the Asian Development Bank managing director, General Rajat Nag, told Reuters on Wednesday. “However, I think central banks in the region have to keep an eye on the inflation front as well,” he added.
Australia’s treasurer, Wayne Swan, said he welcomed the Fed’s move, while predicting that the domestic economy would remain strong despite any U.S. slowdown.
“It’s pretty fair to say that Australians can be confident that the prospects for growth in Asia and developing regions will help us withstand the fallout from the events in the United States and elsewhere,” he said.
Fred Zhang, a stock broker at Mansion House Securities in Hong Kong, said that Hong Kong investors were particularly encouraged by the Federal Reserve’s interest rate cut because of the correlation between currencies. Mr. Zhang said that while many investors were still worried, he was optimistic about the short-term prospects for the Hong Kong market.
“I think it will keep going upward,” he said.
After days of losses, “Asian markets were looking for a reason to move back” to prices that represent the fundamental numbers underlying them, said Subir Gokarn, Standard & Poor’s chief economist in Asia. Now investors need to overlook “the panic and the froth, and see what the reality is,” he said.