Obama victory sparks profit-taking in US, Europe

A global stock rally faltered and Wall Street fell hard Wednesday as investors buckled down for a gloomy economic ride after the euphoria of Democrat Barack Obama's US presidential election victory.

Dealers said gains made Tuesday on hopes for fresh efforts to tackle the global financial crisis were surrendered quickly on Wall Street and in Europe although Asia did better despite signs of gathering economic problems.

In New York, the Dow Jones Industrial Average plummeted 486.01 points (5.05 percent) to close at 9,139.27.

The tech-heavy Nasdaq slumped 5.53 percent to 1,681.68 and the Standard & Poor's 500 index slid 5.27 percent to 952.77.

The market action wiped out massive gains from the strongest Election Day rally in history Tuesday as investors hoped that a new president would bring relief from the global financial crisis. The Dow had surged 3.28 percent and the Nasdaq added 3.12 percent.

Michael Townsend at Charles Schwab & Co. said Obama and the Democratic leaders in Congress will have no easy solutions to the current malaise.

"In 10 weeks, Barack Obama will assume the presidency. But the newly elected leaders will be facing a perfect storm of bad news: an economy in recession, a financial crisis that has spawned an ever-expanding role for government in our financial system, wars in two countries, and a budget deficit of staggering proportions," he said.

"The feel-good factor which may have been generated ... from the historic nature of Obama's victory is unlikely to filter through to financial markets," said Martin Slaney, head of derivatives at financial spread betting group GFT in London.

"Given the much bigger economic picture there is little chance of a post-election rally," Slaney said.

In Europe, London's FTSE 100 index of leading shares shed 2.34 percent at 4,530.73. In Paris, the CAC 40 index fell 1.98 percent to 3,618.11 and in Frankfurt, the DAX lost 2.11 percent to 5,166.87.

World leaders hailed Obama's historic triumph but there were also calls for the global superpower to change the way it does business.

European Commission president Jose Manuel Barroso called for the election to usher in a "new deal" between the United States and the rest of the world to tackle the global financial crisis and other troubles.

"Back to the realities of financial world and it seems that the euphoria didn't last that long with stock markets around the globe peering into what they increasingly believe will be a long and protracted period of global recession," said Howard Wheeldon, senior strategist at BGC Partners.

Up to Obama's inauguration on January 20, "there is unlikely to be much if any positive economic news ... despite (government efforts) ... there is unlikely to be much good news around to provide cheer for quite a while," Wheeldon said.

After the strong technical bounce of the past few days, "we now move into a period when markets are likely to do little more than move sideways with the odd upward and downward blip," he said.

Dealers noted that investors across Europe were anticipating further cuts to interest rates on Thursday by both the Bank of England and the European Central Bank to give the economy another boost.

Some economists are forecasting the BoE to follow up last month's emergency half-point reduction to 4.50 percent with a cut of one percent this time around given the deterioration in the economic outlook.

Economists expect a cut of half a percentage point to 3.25 percent by the ECB. Late last month, the US Federal Reserve slashed its key lending rate by a half point to match a historic low of 1.0 percent.

Other markets followed Wall Street lower: Brazil's Bovespa slid 6.03 percent and the Toronto S&P/TSX index lost 2.27 percent.

In Asian trade earlier, however, Tokyo ended with a gain of 4.46 percent, Hong Kong jumped 3.2 percent and Sydney rose 2.9 percent.