Investors in Bermuda have been told not to hit the panic button despite fears over the falling financial markets across the world.

In a bid to stave off a US recession, the Federal Reserve cut interest rates by three-quarters of a percentage point to 3.5 percent, the first emergency reduction since the terrorist attacks on the World Trade Centre on September 11, 2001.

But shares continued to drop sharply on Wall Street yesterday morning, indicating a deepening of the country's housing market slump and increased unemployment levels, as global stock markets also went into decline, with London's main FTSE 100 share index falling more than three percent at the opening of the day, before bouncing back.

Earlier, Asian markets had dropped with Japan's Nikkei index closing down 5.7 percent, taking its decline already for this year to 18 percent.

Bill McKay, lead portfolio manager for Argus Financial Ltd., urged investors to sit tight and wait and see what happens rather than jumping in and selling off their investments at a loss.

"I think that when you see volatile and falling markets like during this year, the declines have been pretty steep," he said.

"We have seen the biggest declines since 9/11 and it is very tempting for investors to throw in the towel as they get more nervous."

Mr. McKay advised investors to look at their own individual situations and ask themselves whether they are in it for the long-term investment.

"Investors have to just look at their own situation and say 'Am I in this for the long haul and does it make sense to sell when things are going cheap?'" he said. "Usually investors are getting their biggest return when they are doing things a little bit uncomfortable, so I think the US Federal Reserve lowered interest rates substantially in the US by 75 base points, the first emergency cut since 9/11, so they are trying to bring a bit of confidence into the markets and show they are being proactive."

And he believes the problems which are impacting the markets now have been developing over the past few months with large global banks making big losses during that period, but it is important to get investors thinking about staying calm and retaining their capital investment.

"Recession is in investors' minds, but we at Argus focus on capital provision and I think it is important for investors to focus on that topic, so that does not mean selling everything and going into cash," he said.

"It is about putting together a portfolio that can be defensive in the marketplace.

"Investors are often tempted to become more aggressive when things are looking really good, which is not the right time to do it.

"Equally, investors are becoming more and more conservative at the wrong time, so it is important not to overreact and really to look at the long haul scenario."

LOM Asset Management Ltd.'s executive vice-president Jon Heckscher said the recent and sudden deterioration in the financial markets had resulted in a panic, which, if left untreated, will drag down the global economy, and thinks the Federal Reserve will cut rates by a further 50 base points to three percent on January 30 to address what the Committee describes as "appreciable downside risks to growth".

"We feel the increase in risk aversion is likely to continue until there is a greater clarity regarding write-downs in the financial sector and the depth of economic slowdown in the United States," he said.

"Consequently, riskier asset classes may experience further downside. At LOM, we feel that although market sentiment has deteriorated, the economic data continues to point to an orderly slowdown in growth and a general recession should be avoided.

"That being said, we feel that US growth under one percent (year-on-year) will have an adverse effect on global growth, causing a systemic global slowdown."

Mr. Heckscher said LOM continued to recommend a balanced portfolio to its investors, with investments in multiple sectors, including stocks, bonds and commodities, as well as hedge funds, in addition to individuals putting their money in funds to provide greater diversification and enjoy the experts' market knowledge regardless of the financial conditions.

Meanwhile, Phil Barnett, president of the Chamber of Commerce, reckons Bermuda's economy is feeling the knock-on effect of the overall drop in the world markets.

"Bermuda, to a certain extent, has already suffered through rising inflation," he said.

"In one of our meetings with the restaurant division of the Chamber the other day, the fact that administrative costs as well as direct prices, such as those for fuel like propane gas for cooking, has dramatically increased over the past year and that has a huge impact on our abilities.

"It could cause a slowing down of expenditure also, and that is always the fear.

"We are by no means recession-proof and, in Bermuda particularly, because we depend on the US and obviously they had enacted the rate cut before the market had already dropped, I think we are certainly in for some interesting times ahead."