Tuesday Was an Anomaly Not a Crash, Says White House

George Bush and Ben Bernanke, head of America's central bank, launched a concerted attempt last night to calm fears of a full-blown crash after a second day of turbulent trading around the globe.

With London posting its second three-figure fall in a row, and Wall Street struggling to recoup losses from its biggest sell-off since 9/11, the White House dismissed the plunge as an anomaly. Edward Lazear, chairman of the US president's council of economic advisers, told a House of Representatives' hearing that officials had found no conclusive reason for the sharp decline. "It looks like whatever happened yesterday was anomalous," he said. "We don't think of it reflecting any of the fundamentals in the economy, which I think are quite strong."

He spoke as data showed a marked downward revision to US growth in the 2006 fourth quarter from an annualised 3.5% to 2.2%. Separate data put sales of new homes down almost 17% in January, the biggest such fall in 13 years, while a survey of manufacturing in the Mid-West was unexpectedly weak. Ben Bernanke, chairman of the Federal Reserve, said in evidence to Congress that the 415-point drop in the Dow Jones on Tuesday had not dented the bank's view about moderate growth. "My view is that, taking all the new data into account, there is really no material change in our expectations for the US economy since I last reported to Congress a couple weeks ago," he said.

On Wall Street, stocks recovered to post modest gains. By lunchtime in New York, the Dow Jones was up 65 points at just under 12,300. In London, however, the main index of UK shares, the FTSE 100, followed a fall of almost 150 points on Tuesday with a decline of 114.6 to 6171.5.

US shares gained despite the world's largest DIY retailer, Home Depot, warning it saw no improvement in the housing market until late 2007 or 2008. On the New York stock exchange floor, there was concern at ongoing technical difficulties blamed for exacerbating Tuesday's sharp drop. Traders yesterday complained that their hand-held computers, used for transactions, were unreliable.

Mr Bernanke helped steady the dollar on the foreign exchange markets, saying that overseas central banks were neither expected to, nor would it be in their interests, to dump US bonds on global debt markets. He did, however, express concern over the exposure of financial markets to the subprime mortgage market.

Some analysts were less convinced of the outlook. "We remain concerned that Tuesday's equity market sell-off could be followed by larger and more widespread falls later this year", said Simon Hayley at Capital Economics.