Market plunges as US Fed panics

Australian sharemarkets have fallen sharply lower following the near-failure of giant US investment bank Bear Stearns overnight.

At 12.35pm the S&P/ASX200 is down 2.2% to 5094.9, 112 points down on Friday’s close, after falling, rising, then falling again by more than 100 points in the first hour of trading.

Bear Stearns revealed late on Friday that it was suffering serious liquidity problems, prompting the US Federal Reserve to deliver an emergency $US30 billion line of credit to keep it afloat.

That was enough to keep the bank afloat until a deal could be announced this morning that will see fellow Wall Street behemoth JP Morgan Chase buy Bear Stearns for the bargain basement price of US$2 a share.

And in an effort to prevent any further damage to the already shaky confidence of the global financial system, the US Federal Reserve this morning announced a surprise 0.25% cut to interest rates.

The move, which brings US interest rates down to 3.25%, comes a day ahead of the scheduled Federal Reserve meeting, which was expected to implement a deep rates cut.

The announcement is likely to send oil and gold prices even higher than their current record levels – the spot gold price hit a record $US1021.40 per ounce this morning – and should give support to the Australian dollar, currently trading at US93.64c.