£46bn wiped off value of UK's top companies

A DEFIANT Barack Obama last night vowed that the US would always be a triple-A economy, despite its ratings agency debt downgrade.

The US president blamed political gridlock in Washington for Standard & Poor's (S&P's) decision on Friday to change the country's rating from AAA to AA+.

Markets around the world slumped yesterday after reopening for the first time since the downgrade, with the FTSE 100 share index suffering a record fall.

It closed down 3.4 per cent, or 178 points - the first time in its 27-year history it has registered falls of more than 100 points for four sessions in a row - wiping 46 billion off the value of shares. Gold broke through the $1,700 per ounce mark, with some traders predicting it could hit $2,000 this year.

The turmoil came as the European Central Bank started to buy up Spanish and Italian debt to prevent the fourth and fifth biggest economies in the EU from having to seek a bailout.

Seeking to show leadership in the volatile global economic climate, Mr Obama said: "Markets will rise and fall. But this is the United States of America. No matter what some agency may say, we've always been, and always will be, a triple-A country."

He hoped the decision by S&P would at least give Congress a renewed sense of urgency to tackle US debt problems. He said that must be done mainly by taking on the politically difficult issues of reforming taxes and social benefit programmes in the coming months.

In New York, the Dow Jones share index dropped by more than 3.7 per cent as markets reacted to the continuing uncertainty.

But Mr Obama insisted the US's problems were "solvable" and blamed Republicans who blocked moves to raise taxes to help deal with the debt crisis.

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Other stock markets also suffered, with the Dax in Germany down 4.6 per cent yesterday and the Nasdaq in New York falling almost 4 per cent.

Meanwhile, the UK government said Britain's continued triple-A credit rating was a justification of its austerity measures.

But a new ComRes poll revealed that confidence in the UK economy had rarely been lower, with 61 per cent expecting the country to slide back into recession.

The poll showed 84 per cent believed the global debt crisis had put the UK economy in danger, and 78 per cent believed EU leaders had handled it badly. Just 13 per cent thought bankers in the UK had learned their lesson from the collapse in 2008 and 62 per cent believed the government was more concerned about protecting banks than taxpayers.

On the continent, eurozone central bankers took emergency action to shore up Italy and Spain. At the end of a weekend of frantic activity, European Central Bank (ECB) president Jean-Claude Trichet announced plans for a bond-purchase programme aimed at driving down the interest yields that threaten the two countries' shaky budgets.

Finance ministers from the world's major economies also vowed to take "all necessary measures" to support financial stability and growth.

Chancellor George Osborne urged eurozone countries and institutions to deliver on their promises to restore financial stability, but warned that far wider "decisive, co-ordinated action" would be needed for a permanent solution.

Experts have suggested the latest stock market falls and gloomy outlook could spark a renewed round of quantitative easing by the Bank of England, while Deputy Prime Minister Nick Clegg hinted that the government could cut business taxes to drive growth.

He said: "There's a whole raft of things we are doing, and we will do more as we develop our growth review to stimulate growth in the British economy."But there was scepticism over whether the ECB's intervention had helped calm the markets.

Tobias Blattner, a former economist at the ECB, said its intervention had done little to help the crisis of confidence gripping the share markets. He went on: "This reflects the fundamentals that growth is in a very bad situation on both sides of the Atlantic and this is why the ECB's interventions will not change anything,"

Louise Cooper, an analyst at BGC Partners, said: "Equity markets are just dropping through the floor. Normally you would expect to see some kind of relief rally as bottom fishers come in looking for a bargain, but people are just terrified."

There were wider concerns over whether national governments were willing to take the measures necessary to reduce their debt burdens and stabilise their economies, particularly after the sharp divisions in the US between the Obama administration and Republicans.

David Jones, an analyst at financial spread betting firm IG Index, said investors would remain unconvinced, despite the various attempts by leaders and international authorities to reassure the markets.

"It hasn't changed the feeling that politicians both in Europe and in the US are always a few steps behind where the crisis is," he said.

"It is a lack of confidence. Markets still think there is a lot of talk from politicians but not much action.

"They are reacting to the crisis rather than putting anything proactive in place. The political issue is a major reason why the markets have been so weak over the past week".

Richard Hunter, from Hargreaves Lansdown, said investors wanted to see more being done to resolve the crisis. "The markets are looking for a concrete plan out of Europe and the US in terms of how they are going to deal with their deficits," he said.

He added: "Until the market can get comfort on these matters, there is going to be more volatility."