NEW YORK, Dec 6: Wall Street’s roller-coaster ride saw more gut-wrenching turns over the past week as investors came to terms with what appears to be a deep and painful economic slump.

The market faced an official declaration that the US economy is in recession -- and has been for a year -- and indications that conditions may be worsening.

In the week to Friday, the Dow Jones Industrial Average fell 2.19 per cent to 8.635.42, following a stunning 9.73 percent rise in the prior week.

The tech-studded Nasdaq shed 1.71 per cent to 1,509.31 and the broad-market Standard & Poor’s 500 declined 2.25 per cent to 876.07.

The market action was highly volatile as signs of deeper economic troubles resurfaced. One official report showed the US economy shed 533,000 jobs in November and over one million in the past three months, pushing the unemployment rate to a 15-year high.Just when you thought that the US economic outlook couldn’t get any uglier, it goes ahead and does, said Meny Grauman, economist at CIBC World Markets.

The running tally of payroll declines that the US economy is now racking up is pushing up the odds that this downturn is even deeper than many had contemplated.The economy is now locked in a vicious downward spiral in which employment, incomes, and spending are collapsing together,” said economist Nigel Gault at IHS Global Insight, predicting a drop in fourth-quarter activity of 5.0 to 6.0 percent annualized.

Other surveys showed extremely weak readings on the factory and service sectors, and reports from retailers showed consumers still clinging tightly to their wallets.

Brad Sorensen, analyst at Charles Schwab & Co., says the grim economic situation does not preclude a stock market rebound.

We want to remind investors that the labour report is what we call a lagging indicator -- meaning it is always behind the actual economic situation,” Sorensen said in a note to clients.

We expect the bad economic data to continue for the foreseeable future, but note that the market typically starts to recover five to six months before the economy does. On December 2, the National Bureau of Economic Research, the panel recognized as the official arbiter of business cycles, said the US recession began in December 2007, ending any doubt about the slump.

Although a recession is generally defined as two consecutive quarters of declining activity, the panel has its own criteria for determining a downturn, including data on employment, income and industrial output.

Some analysts said the fact that the downturn began a year ago suggests recovery may be coming soon. John Wilson, equity strategist at Morgan Keegan, said the bear markets of 1974 and 1982 ended even as the news was the bleakest.

I’m not trying to put on my rose-colored glasses here, just pointing out that markets have a history of turning up against a backdrop of bad news as they discount the future, he said.

The panic in global financial markets has sparked an unprecedented rush into safe US Treasury securities, driving yields on short-term government notes down to almost zero.

Due to stampeding demand for safe short-term investments, the US Treasury’s four-week and three-month bills on Friday yielded an effective rate as low as 0.01 per cent.

The yield on the 10-year Treasury bond sank to 2.657 per cent from 2.957 per cent a week earlier, and that on the 30-year Treasury bond slid to 3.110 per cent against 3.487 per cent.

Mike Larson, an analyst at Weiss Research, says the long-term bond market could be “the biggest bubble of all,” worse than the dot-com and real estate bubbles.—AFP