Markets slides on US worries: Economy roundup

Australian markets have tumbled sharply lower this morning, with the S&P/ASX200 reversing yesterday’s modest gains to be down 3.2% to 5259.7 at 12.50pm.

An announcement by Citigroup, the fourth-largest US home lender, that it plans to reduce its US mortgage and home-equity holdings by about $US45 billion and pessimism about the economic outlook in the US are the key reason for today’s falls.

Overnight evidence emerged of a recent slump in the US services sector, with an Institute of Supply Management report showing the sector contracted in February for the second consecutive month.

There was also bad news on the US jobs front, with the ISM report showing services business shed jobs for the first time in five years, while at the same time Government data showed labour costs increased significantly in the final quarter of 2007.

And an announcement by Thornburg Mortgages that part of the reason it had failed to meet margin calls was because the market for Alt-A mortgages, which are not considered as risky as sub-prime ones, has deteriorated and lacks liquidity, also contributed to the gloom

All that saw US markets move significantly lower overnight, with the Dow Jones Index closing 1.75% lower to 12,040.39.