At the same time, the European Central Bank, after a hastily arranged meeting, signaled that it would invest in European bond markets in a bid to prop up hard-hit Italy and Spain, Europe’s fourth- and fifth-largest economies, which are in the midst of a worsening financial crisis.
The ECB intervention at first appeared to buoy markets Monday, driving down borrowing costs for both Italy and Spain and sending stocks in Milan and Madrid sharply higher.
But markets in London, Germany and elsewhere were dropping, with losses ranging between 1.6 and 2.9 percent.
Asian markets also sank, with Japan’s Nikkei closing at its lowest mark since mid-March. South Korea’s exchange halted traded briefly amid steep losses, and ultimately closed down 3.82 percent.
U.S. and European officials are trying to calm anxiety about the global economy as the U.S. downgrade and European debt problems threaten to feed on each other, weighing on markets and a limp economy on both sides of the Atlantic.
The emergency actions Sunday evoked memories of the response to the financial crisis in 2008 and portended intense volatility in global financial markets this week. The dollar fell over the weekend while gold soared. Stock markets in the Middle East plunged, and U.S. stock futures appeared negative. Asian markets dropped at the opening.
After the emergency conference call involving Geithner and Bernanke, the top seven economies expressed support for actions taken by both the United States and Europe and committed “to taking coordinated action where needed, to ensuring liquidity, and to supporting financial market functioning, financial stability and economic growth.” They said they would particularly take action to curb volatility in currency trading.
Amid this uncertainty, the Obama administration announced Sunday that Geithner, the president’s longest-serving economic adviser, would remain in his post through fall 2012. Geithner had told President Obama that he was ready to step down after leaders reached an agreement to raise the debt ceiling last week, but the president asked him to stay.
Geithner told Obama on Friday morning that he would agree to remain in the administration — only to inform the president later in the afternoon that the country would face a downgrade.
S&P cited the U.S. debt burden and political paralysis in its decision to remove the nation’s sterling AAA rating. The Obama administration blasted the decision, saying it was based on faulty logic and math, while acknowledging that Washington must do more to tame its debt.