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Swiss franc slumps; stocks drop again on US return
Swiss franc slumps after euro peg announcement; stocks drop too despite bright European open
By The Associated Press

LONDON (AP) ' The Swiss franc dropped sharply Tuesday after the country's central bank pegged it against the euro, while a recovery in European stock markets proved short-lived as Wall Street opened sharply lower.

The most dramatic market movements centered on Switzerland after the central bank announced it was pegging the national currency at 1.20 francs per euro in an attempt to rein in the export-sapping appreciation of the currency.

The Swiss National Bank said it was ready to buy foreign currency in unlimited quantities to keep the franc weak.

The surprise announcement had an immediate impact, particularly in the currency markets ' by mid afternoon London time, the euro was 8.8 percent higher at 1.2025 francs, while the dollar was 9 percent firmer at 0.8554 franc.

The peg also helped Swiss stocks make sizable gains despite losses in most other countries.

Switzerland's main SMI index was up 3.4 percent at 5,317 as investors hoped the move would help Swiss businesses sell more in international markets. A weaker currency makes a country's goods and services more competitive all things being equal.

The franc has been hugely in demand in recent weeks due to its widely perceived status as a safe haven during times of market volatility. Gold, another safe haven, has also been hitting regular all-time highs.

Analysts were skeptical over whether the move will work in the long-run, especially if the European debt crisis piles the pressure on the euro.

"The SNB has in effect put itself in direct conflict with the markets' strong desire to buy safe haven assets," said Jane Foley, an analyst at Rabobank International. "In the very probable event that the eurozone crisis worsens in the coming months, intervention could be very costly for the SNB."

In stock markets, the recent negative tone reasserted itself despite early gains in Europe as U.S. traders returning from the long Labor Day weekend were pessimistic over the state of the U.S. economy in particular.

In Europe, Germany's DAX was down 1.1 percent at 5,188 while France's CAC-40 fell 1.3 percent to 2,961. Britain's FTSE 100 index was bucking the trend, trading 0.1 percent higher at 5,105.

On Wall Street, the Dow Jones industrial average was down 2.4 percent to 10,972 while the broader Standard & Poor's 500 index fell 2.6 percent 1,143.

For weeks, investors have fretted over a combination of fears over the state of the global economy and Europe's debt crisis.

Analysts said these concerns are likely to dominate markets for some time to come. Potentially the most important scheduled event this week will be the European Central Bank's monthly interest rate decision and the subsequent press conference from its president Jean-Claude Trichet.

"For investors, there are a whole load or reasons to be fearful, with little signs of any solutions forthcoming," said Louise Cooper, markets analyst at BGC Partners.

Earlier in Asia, shares were under pressure following Monday's big falls in Europe.

Japan's Nikkei 225 index dropped 2.2 percent to close at 8,590.57 with shares of the country's powerhouse export sector skidding amid fears of another U.S. recession. Toshiba Corp. plunged 5.1 percent and Panasonic Corp. lost 3.4 percent.

Australia's S&P/ASX 200 shed 1.6 percent to 4,075.50 and South Korea's Kospi fell 1.1 percent at 1,766.71.

Mainland Chinese shares lost further ground with the Shanghai's benchmark Composite Index slipping to nearly a 14-month low, down 0.3 percent at 2,470.52. The Shenzhen Composite Index lost 1.1 percent to 1,085.35.

Bucking the trend, Hong Kong's Hang Seng registered a modest gain of 0.5 percent to 19,710.50.

In the oil markets, prices remained under pressure by concerns over global demand.

Benchmark oil for October delivery was down $2.31 to $84.14 in electronic trading on the New York Mercantile Exchange.


Pamela Sampson in Bangkok contributed to this report.

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