NEW YORK – Investors and governments struggled on Monday to adapt to a global economy now marked by anemic growth as the threat of military conflict loomed large and President Bush froze bank accounts linked to those thought responsible for terror attacks on the United States.
Switzerland unexpectedly cut key short-term interest rates by half a percentage point to stem a flood of money into its safe haven currency, which could damage its export-dependent economy. Britain acted to shore up its stock market by adjusting rules on how insurers invest their money.
In Washington, Bush said the government would freeze assets of Islamic militant Osama bin Laden, the prime suspect in the deadly Sept. 11 attacks on U.S. landmarks, and threatened to freeze U.S. financial assets of foreign banks that refused to cooperate in shutting down militant groups.
Despite the gloomy environment, U.S. stocks zoomed higher in early trading -- supported by rises in European markets -- as investors hunted for bargains in a market shattered by the biggest weekly decline since the Great Depression of the 1930.
``I want to assure the American people that the fundamentals for growth are very strong, `` Bush said at the White House. ''There's no question the attacks have affected America. But I think when the investors sit back and take a hard look at the fundamentals of the economy they'll get back in the market.''
He added: ``You bet there's problems with our economy short run, but not long run.'' Most economists think the $10 trillion U.S. economy, which was already at a standstill before the terror strikes, is now firmly in the grips of recession and will not bounce back before the first half of next year.
KEEPING THE LID ON
Meanwhile, the Bank of Japan intervened again on the foreign exchanges to prevent a further strengthening of the yen against the dollar, which is hurting that country's already struggling exporters. And the European Central Bank at Japan's request helped out by buying euros and selling the yen.
The moves came after European Union finance ministers, meeting in Belgium at the weekend, struck a deal to keep their airlines flying despite soaring insurance costs in the wake of the Sept. 11 attacks on the United States. U.S. leaders have put together a $15 billion bailout package for U.S. carriers.
As the United States continued its troop build-up near Afghanistan, where bin Laden has been sheltering, there was further sobering news on economic growth in Europe.
EU statistics bureau Eurostat reported a 1.4 percent fall in euro zone industrial production in July and Germany's top exporters group BGA halved its forecast for growth in world trade this year to 6 percent.
``The recent events have increased the uncertainty and downside risks for global growth prospects,'' European Economic and MonetaryAffairs Commissioner Pedro Solbes said in a speech in Brussels.
Indeed, Didier Reynders, the Belgian finance minister who chaired the weekend meeting of his EU colleagues, told French radio the attacks on the United States would push euro zone growth down below 2.0 percent this year.
But German Finance Minister Hans Eichel tried to soothe concerns telling a party conference in Berlin that he saw no danger of an economic crisis and while world stock markets were showing uncertainty, there was no panic.
``I am certain that despite these horrible events, we can use the improvements of economic indicators and confidence to bolster economic growth this year and next,'' he said.
Investment bank Merrill Lynch, however, was gloomier forecasting that the euro zone would follow the United States into recession this year. Most economists expect central banks, led by the Federal Reserve, to cut interest rates again in the weeks ahead to cushion the downturn.
``Upcoming economic data will disappoint,'' economists at Bank of America said in a research note. ``The near-term outlook for financial markets is very choppy indeed.''
UK INSURANCE RULES ADJUSTED
The outlook is worsening in Britain too, where central bank Governor Sir Edward George added to economic gloom by saying this weekend that he could not rule out a recession.
To ward off further declines in U.K. stocks, the Financial Services Authority, citing ``current unusual market conditions,'' relaxed rules that forced insurers to offload shares when the market fell sharply and to switch into less risky bonds.
The move helped British shares to stage a welcome rally. Markets across Europe rose strongly on relief that U.S. military action in Afghanistan had not yet started and seeing some bargains amid the rubble of the steep losses last week.
``The word is, the world didn't end this weekend, so we're going up. It's as simple as that,'' said Tom Hougaard, an equities trader and analyst at Financial Spreads in London.
The Swiss National Bank's action in cutting its target range for the key three-month Swiss franc London Interbank Offered Rate by half a point to 1.75-2.75 percent was another move by an European authority to shore up an economy rattled by the attacks on New York and the Pentagon.
The country's franc, a traditional safe haven in times of conflict because of the country's long-standing neutrality, has soared almost 5 percent since Sept. 11 against the euro. With the euro zone accounting for roughly 60 percent of Switzerland's exports, a strong franc threatens its export industry.
``The rise of the Swiss franc rate against the euro at a time of declining growth fills the National Bank with great concern,'' it said in a statement.