US Stocks Continue Falling Amid Growing Recession Fears

American stocks tumbled today as Wall Street's worries over an imminent recession were aggravated by a warning from Merrill Lynch that the subprime mortgage crisis is turning into a global "pandemic".

The Federal Reserve's emergency cut in interest rates failed to sooth despondency on the markets. After falling by 326 points at one stage, the Dow Jones Industrial Average was down 133 to 11,839 by lunchtime in New York.

Depressed by disappointing iPod sales from Apple, the technology-dominated Nasdaq index slumped by 58 to 2,234. The price of oil dipped below $87 on predictions of a slowdown in economic activity.

In a strategy note, the investment bank Merrill Lynch suggested the Fed's rate cut was garnering too much attention. It said central banks only influenced the price of credit - not the reluctance of battered financial institutions to make money available in the first place.

Shares in oil companies such as Exxon Mobil and ConocoPhillips slipped sharply on concern that lower growth will reduce demand for fuel.

The phone company Motorola fell by 22% after a dive in profits, while Google slumped by 10% as analysts at UBS turned "cautious" about its earnings growth.

It was a sixth successive day of decline for the Dow Jones index.

"When the Fed cuts 75 basis points, stocks are supposed to go up," said TJ Marta, fixed-income strategist at RBC Capital Markets. "That's not happening. There's a lot of dread out there."

In Washington, the Democratic chairman of the Senate banking committee, Christopher Dodd, revealed he was working on a plan to set up a $10bn to $20bn company capable of buying distressed mortgages and replacing them with lower-rate loans backed either by the US government or by government-sponsored entities Freddie Mac and Fannie Mae.