Global markets in epic slump

Recessions loom around the world amid the biggest drop in emerging exchanges in more than 20 years.

Dirk Mueller, a trader on the Frankfurt Stock Exchange, reacts as he watches the DAX share price index fall.

Major stock markets around the world fell sharply today, with emerging markets staging their biggest one-day falls in more than 20 years. From Tokyo to London to Sao Paulo, investors delivered their verdict on the rescue package for Wall Street and the worsening state of the world economy. In Asia, Japan's Nikkei index fell 4.3 per cent to its lowest close since February 2004, while Hong Kong's Hang Seng index closed down five per cent, and Indonesia's Composite Index fell by a record 10 per cent. In the Gulf, Saudi Arabia's Tadawul was down nearly 10 per cent, its biggest-ever daily fall, while the Dubai Financial Market tumbled by 7.61 per cent, its third-largest daily fall ever, ending at 3551.79 - its lowest level since April 2, 2005. The Abu Dhabi Securities Exchange was down 5.61 per cent to close at 3558.18, a figure last seen in September of last year.

"Markets are in the firm grip of bear operators," said Shiv Prakash, an equity investment analyst at Mac Capital Advisors in Dubai. In Europe the story was the same, with bank and energy shares particularly hard hit. In London, £60 billion (Dh390bn) was wiped off the value of shares in the first hour, with the FTSE 100 Index down 7.29 per cent, and closing below 4,700 for the first time since 2004. France's CAC-40 was down 9.04 per cent - a historic percentage drop - and Germany's DAX, 7.22 per cent. Russia's key markets slumped by nearly 15 per cent. In Brazil, Sao Paulo's Ibovespa index fell 10 per cent, triggering a temporary suspension of half an hour. The Dow Jones industrial average was down five per cent in early trading, dipping below 10,000 for the first time in four years.

Over the past month, global exchanges have suffered large losses amid the ongoing crisis. Since Sept 8, the London FTSE market has declined 15.4 per cent, while Tokyo's Nikkei has plunged 17 per cent and the Dow has fallen by 13.7 per cent. Bank of America chief economist Mickey Levy said it was hard to overestimate the crisis. "Strains in funding markets for banks and other financial markets have now escalated to such an extent that all major industrialised economies of the world are either in or at the brink of outright recession," he said.

Analysts said that it could have been even worse if authorities had not banned short-selling - the practice of selling shares you do not own, with the expectation that they can be replaced at a cheaper cost. Oil prices fell briefly to their lowest level in eight months, down below $90, before rallying to $91.09. Commodity markets are heading for the biggest annual decline since 2001 as investors exit leveraged bets and slowing economic growth erodes demand for raw materials. The value of the 19 commodities in the Reuters-Jefferies CRB Index fell $280.6bn, or 43 per cent, from its July 3 peak, a loss larger than their total worth two years' ago, according to data compiled by Bloomberg.

With France, Britain, Italy and Ireland already in recession, and Iceland almost bankrupt, confidence was extremely fragile as what started as a problem with asset-backed securities in America is turning into a global recession. The euro today recorded its biggest one-day drop against the yen since its launch in 1999, and hit a 14-month low against the dollar, ending at $1.36. The European Central Bank, together with the Bank of England and the Swiss National Bank, did their best to keep financial markets liquid, offering a combined US$60 billion (Dh220bn) today to embattled banks. The cost of borrowing in euros for three months rose to a record for a seventh day, according to the European Banking Federation. Euribor, the euro interbank offered rate, increased one basis point to 5.35 per cent.

Many economists see it as increasingly likely that the European Central Bank will cut interest rates - currently at four per cent - before the end of the year. Additional reporting by Andrew Foxwell * With agencies [e-mail] [e-mail]