The weakest performance registered by America's service sector since the aftermath of the 9/11 terrorist attacks caused fresh recession fears last night and another day of frenzied selling in the financial markets in New York.
By mid-afternoon more than 300 points had been wiped off the Dow Jones industrial average, while shares in London dropped by 2%, with the FTSE 100 down 158.2 points at 5868.0.
In a shock to Wall Street, the monthly snapshot of the non-manufacturing wing of the US economy showed a precipitous drop in activity last month, despite two cuts in interest rates from the Federal Reserve.
Some analysts said that the scale of the decline in the service sector, if backed up by other evidence over the coming days, might lead the Fed into another emergency cut in the cost of borrowing before its next scheduled meeting in March. The central bank cut rates by 0.75 points on January 21, only eight days before a regular meeting at which it announced a further 0.5 point reduction to 3%.
Jeffrey Lacker, president of the Richmond Federal Reserve bank, said that further easing of policy might be necessary as he warned of the risk of a "mild recession" for the world's biggest economy this year. "The prominence of downside risks means that further easing ultimately may be warranted."
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