After Monday's buying spree, Wall Street has second thoughts

New York Stock Exchange

Second thoughts: Wall Street

Stock markets retreated last night amid fears the White House's redesigned bank rescue will fail to ward off a deep recession.

Wall Street investors lost heart after details of the $250billion cash injection were revealed.

The Dow Jones Industrial Average recorded its biggest ever points gain on Monday as news of Treasury Secretary Hank Paulson's revised bail-out leaked out.

This was followed by a spectacular 14 per cent rise in Japan's Nikkei index.

But last night the Dow closed down 76 points at 9,310, erasing gains of more than 400 points earlier in the day.

In London the FTSE 100 yesterday recorded a second day of gains, finishing up 3.23 per cent.

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The Cac in France and Dax in Germany also recorded modest gains. But following last night's muted reaction on Wall Street, the blue chip indices may also fall back today.

A dire warning that America faces its deepest recession for decades contributed to the sell-off on Wall Street.

In an interview with U.S. financial newswire Bloomberg respected economist Nouriel Roubini predicted the recession would last 18 to 24 months, driving U.S. unemployment to 9 per cent.

House prices will tumble another 15 per cent and Washington may have to double the size of its investments in stricken banks, he warned.