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Rate Cut, Market Turmoil Add to Unease Over Economy

Amid fears of a U.S. economic downturn, global markets suffered steep losses and the Federal Reserve slashed a key interest rate by three-quarters of a percentage point Tuesday -- its biggest cut in over 23 years. Financial experts examine why the Fed rolled out the surprise rate cut and the forces behind the market turmoil.

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  • JIM LEHRER:

    That turmoil in financial markets, Ray Suarez begins our coverage.

  • RAY SUAREZ:

    There's an old adage about U.S. economic turbulence. When America sneezes, the world catches cold. But for the last two days, it looked like the world had caught a bad case of the flu.

    Following steep losses on Monday, Japan's main stock index closed down 5.65 percent today, its biggest percentage drop in nearly a decade.

  • JAPANESE MARKET ANALYST (through translator):

    We must consider carefully after observing the upcoming economic figures and market trend. It's not yet time to be swinging between hope and despair.

  • RAY SUAREZ:

    Hong Kong's index plunged just over 8.5 percent a day after posting its biggest losses since the September 11, 2001, attacks.

  • FRANCIS LUN, General Manager, Fulbright Securities Limited:

    People are still apprehensive. And they want to see how the U.S. market reacts to the global financial crisis tonight.

  • RAY SUAREZ:

    The Shanghai Composite Index plunged more than 7 percent. And trading in India was temporarily halted after the market there fell nearly 10 percent within minutes of opening. Although it rebounded, it still finished the day 5 percent lower.

    In Europe, the fall continued initially, but at the end of the day London's main index closed nearly 3 percent higher, along with Paris', up just over 2 percent. Frankfurt's index was down a 0.3 percent.

    In Brussels, the E.U. finance minister blamed U.S. overspending for the worldwide travails and said European markets are in a better position to weather the economic storm.

    JOAQUIN ALMUNIA, Commissioner for Economic and Monetary Affairs, European Union: … that we are living in an uncertain period after the starting of the turmoil last August. The tensions in financial markets are still. And during the last couple of weeks, in particular yesterday and today, the equity markets are reflecting these tensions.