European and Asian Markets Rally on News of U.S. Rate Cut

Mervyn A. King, head of the Bank of England, which operates independently from the British government, said the credit squeeze and increasing inflation could spell trouble for Britain. "To put it bluntly, this year we are probably facing a period of above target inflation and a marked slowing in growth," King told a group of business leaders in Bristol, England, the Associated Press reported.

The subprime-mortgage crisis in the United States has already caused problems in Europe. German bank WestLB on Monday said it would post a 2007 loss of $1.45 billion, stemming mostly from exposure to U.S. mortgages, and said it expected $1.5 billion more in write-downs. In Switzerland, UBS this month said it had taken charges of $14.5 billion, much of which was related to subprime mortgages in the United States.

In Russia, where stocks fell modestly yesterday after steep drops in previous days, government officials said the country would be able to ride what one Central Bank official called "the crisis in the West."

Jean-Claude Juncker, the prime minister of Luxembourg, said in Brussels that "deficiencies" in the U.S. economy, about which Europeans had "warned repeatedly," were now "taking bitter revenge" against the U.S. economy.

Mike Lenhoff, chief strategist for Brewin Dolphin Securities in London, said in an interview that criticism of the United States was a familiar European habit.

"I think the European mentality is that Americans are a bunch of big spenders who get themselves into trouble and cause problems for everybody," said Lenhoff, a Canadian who works for a British company. "Certainly the root of this problem was American. And I can understand why there is hostility. But I think it is misplaced. America is doing all it can do right now."

Michael Fallon, a Conservative Party member of the British Parliament and a member of its Treasury Committee, said, "What we are seeing is huge uncertainty in the market." He said Britain could not match the Fed's rate cuts or President Bush's stimulus package, announced Friday, because Britain could not afford it. "We're much more boxed in," he said.

In Latin America, Brazil's benchmark Bovespa index was up 4.45 percent yesterday, rebounding from Monday's four-month low. Argentina's Merval index in Buenos Aires rose 3.55 percent. The gains in Brazil were also fueled by state-run Petrobras's announcement of the discovery of a natural-gas field.

The Brazilian and Argentine economies had been hurt in recent weeks, as many investors sold off emerging-market securities. Argentine economist Federico Thomsen said the two economies, aided by high commodity prices, were better prepared to deal with a slumping U.S. economy than they had been, but that it was too early to discount off a trickle-down effect from Wall Street.

The Mexican Bolsa, Latin America's second-largest stock exchange, finished up 6.46 percent yesterday, before which it had been down 14 percent for the year.

In 2001, when the U.S. economy and stock markets slumped, so did the Mexican stock market. But "the Mexican economy has a much more solid footing now," said Eduardo Garc¿a, a Mexico City analyst who runs the Sentido Com¿n business Web site.

Garc¿a said inflation was under control in Mexico, interest rates were at historic lows and there was abundant credit available for businesses. High oil prices are also helping stabilize Mexico's economy. Still, Garc¿a said, "everybody's worried."