US stocks dropped for a second straight day on Thursday, led by declines in the Nasdaq after tech bellwether Cisco Systems signalled the credit crisis was hurting demand from key customers, including banks. A late-day rebound in beaten-down financial stocks, however, pulled the indexes well off their worst levels of the day, partly due to traders covering short positions.

The Dow Jones industrial average dropped 33.73 points, or 0.25 per cent, to end at 13,266.29. The Standard & Poor’s 500 Index was down just 0.85 of a point, or 0.06 per cent, at 1,474.77. The Nasdaq Composite Index was down 52.76 points, or 1.92 per cent, at 2,696.00.

The European Central Bank held its key interest rate at 4.0 per cent on Thursday as the bank contends with conflicting pressures from a soaring euro and a jump in euro zone inflation. The Bank of England held interest rates at a six-year high of 5.75 per cent for the fourth month running on Thursday, but expectations of a cut soon are growing as stocks slide and house prices fall.

Asian markets fell yesterday after Wall Street posted its second big drop in a week as investors worried about the extent of fallout from the global credit crisis. Japan’s benchmark Nikkei 225 index sank 2 per cent, while the Hang Seng Index in Hong Kong tumbled 3.2 per cent. China’s benchmark Shanghai Composite Index lost 4.9 per cent in its biggest one-day decline in four months. Shares also fell in Australia, India, South Korea and the Philippines.

In Japan, the Nikkei 225 index fell 325.11 points, or 2.02 per cent, to 15,771.57. In Hong Kong, the benchmark Hang Seng index dropped 948.71 points, or 3.2 per cent, to 28,760.22.

Stock markets in Singapore and Malaysia were closed for the Deepavali holiday yesterday.