Unfortunately for investors, the bears are having fun on Wall Street.
After big falls in Asia yesterday, Europe bounced (it was sold off the day before on the poor news about the health of the US services sector) and there were hopes the US markets would follow.
And for a while, the did, edging up by around 1% as buying strength appeared.
Commodity prices rose, including gold, but oil fell after the biggest rise in US stocks for four years, according to early reports.
Then the bears had their fun: a Fed official raised concerns that rising inflation will cause the central bank to be more cautious when it comes to interest rate cuts.
US punters want a 0.25% cut at least at next month's Fed meeting.
The Dow fell 0.6%, the S&P 500 lost 0.7% and Nasdaq lost 1.3%.
"With inflation creeping up, we have to be particularly alert for rising inflation expectations. It is important that inflation expectations remain stable," Federal Reserve Bank of Philadelphia President Charles Plosser told the Birmingham Rotary Club, according to a transcript of his speech.
"Ignoring price stability during times of economic weakness risks undermining our ability to achieve economic growth over the long run. It fuels higher inflation down the road and risks inappropriate risk taking and recurring boom/bust cycles," he added.
Brokers said the mood on Wall Street was cautiously optimistic before these comments after the markets had risen after the US Labor department said productivity was stronger than expected in the fourth quarter.
The news helped counter those recession fears sparked by Tuesday's report showing unexpected weakness in the service sector.
But the bears smiled and pointed out that productivity had risen because output fell slower than jobs: the rise was mostly due to job losses, not increased output.
They then highlighted an announcement from leading department store chain, Macy's that sakes fell 7.1% in January and it would fire 2,300 people, mostly managers, in a reorganisation of the business.
That was taken as confirming the weaker services sector report on Tuesday.
Asian stocks fell sharply yesterday but European markets had bounced after early losses, after a surprise contraction in the US service sector suggested the world's largest economy had slid into recession.
BHP Billiton pushed the Australian market lower with a $2.99 fall, the biggest since December 1987 after it raised its bid for Rio Tinto Group and reported a small drop in profit.
The All Ordinaries and the ASX/200 shed between 175 and 183 points, or around 3% after a fall of a similar size in the US in the S&P 500 Tuesday.
The MSCI Asia-Pacific Index slipped 3.4% yesterday with Hong Kong's Hang Seng Index down 5.4%, more than any index in the world, ahead of Lunar New Year holidays.
Markets in China, South Korea, Taiwan and New Zealand were closed today. Hong Kong and Singapore shut after morning trading.
The Nikkei 225 Stock Average lost 4.7% in Tokyo to 13,099.24.
The looming Asian holidays contributed to the size of the falls because of a lack of trading interest, but the news from the US surprised investors with the size of the apparent downturn in the US services sector, which accounts for around 90% of the US economy.
The drop in Australian shares accelerated their slide was the largest since the 7% plunge two weeks, as investor worries about a US recession and reacted badly to the higher Rio offer from BHP.
BHP Billiton contributed more than a quarter of the day's decline. Its shares lost 7.5%, or $2.99, to $36.66, its worst one-day fall in more than 20 years.
BHP has earlier announced it would make a formal bid worth $US147.4 billion ($164 billion) for Rio Tinto, offering 3.4 of its own shares for each of Rio's, up from the original three shares for one suggested last November.
Banking stocks mostly were lower, with ANZ Bank shedding 96 cents to $25.44, Commonwealth Bank down $1.27 to $48.55 (after cynically lifting its home loan rate 0.30% instead of the 0.25% of the Reserve Bank)and NAB down 86 cents to $32.78. Westpac lost 50 cents to $25.40.
Macquarie Group also contributed to the slide. Its shares shed 9% after the country's biggest investment bank announced the impending retirement of chief executive Allan Moss.
Macquarie Group shares ended the day off $6.06, slumping to $61.10.
Gold prices fell so gold miners were weaker. Newcrest lost $1.21 to $34.35, Lihir shed eight cents to $3.38 and Newmont dropped eight cents to $5.57.
Energy stocks also fell, with Woodside Petroleum down $1.66 to $46.30, Santos down 42 cents to $12.70 and Oil Search off 11 cents to $3.96.
Investors also punished Hills Industries after it reported a poor first half result. Hills shares fell 20 cents to $4.90.
Retail stocks also went backwards, with Wesfarmers down 87 cents to $37.03, Woolworths 74 cents lower at $28.26, David Jones down
20 cents to $4.24 and Harvey Norman shedding 16 cents to $5.22.
