US shares fluctuated heavily today amid renewed concerns about the strength of the American economy after the number of new housing starts plummeted to a 26-year low.

The Dow Jones industrial average fell by as much as 240 points within minutes of opening before rebounding to close 127.04 points down at 8,852.22.

It emerged today that the construction began on 817,000 new homes in September, 6.3 per cent below the number started in August.

New houses for single families were worst hit, declining by 12 per cent to 544,000, the lowest number since 1982. At the same time, building permits, which are a sign of future construction, fell by 8.3 per cent to a 27-year low of 786,000.

In contrast, new homes, such as apartment buildings, for multiple families, rose by 7.5 per cent from August to 273,000.

Trading on Wall Street has been extremely volatile this week, beginning on Tuesday when the White House announced a $250 billion plan to buy stakes in nine US banks to shore up the country's financial system.

While doubts about the finer details of the rescue package, which mirrored a scheme announced by British Prime Minister Gordon Brown on Monday, sent US shares down, the Dow plunged by 8 per cent on Wednesday following dire retail figures.

Yesterday, following mixed signals about rising unemployment, stagnant inflation and falling industrial production, shares closed over 400 points higher, helped by strong third quarter results from Google, the world's largest internet company.

But, today's worse-than-expected figures on new US housing today have unnerved already fearful investors.

Commenting on the bailout plan, President George W. Bush said the Government’s intervention was a “last resort” measure, adding: “I would oppose such measures under ordinary circumstances. But these are not ordinary circumstances.”

President Bush also said that the steps taken by the Government would take some time to fully work their way through the financial system. He said: “It took a while for the credit markets to freeze up, and it’s going to take a while for the credit system to thaw.”

While American stocks fell, London shares closed up 201 points, pushing the FTSE index of blue chip companies through the 4,000 level at 4,063.01 on strong gains by oil and mining groups as the price of crude rose from yesterday’s 14-month low of $68 a barrel to $71.

Earlier this week, it emerged that inflation had risen from 4.7 per cent to 5.2 per cent in September.

However, economists predict that the Consumer Price Index may have peaked and will now start to tumble, increasing hopes that the Bank of England could act again to reduce interest rates further after last week's emergency half point cut to 4.5 per cent.

Howard Archer, chief UK and European economist at Global Insight, predicts that the Bank could announce a further half point cut in November, bringing the rate down to 4 per cent and may reduce borrowing costs even further to 1.5 per cent by the end of 2009 to protect the economy against recession.

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