Markets collapse on recession fear

Stock exchanges plunge in value as recession looms and Britain bails out banks amid clamour for global interest rate cuts.

European markets are expected to be hit when they open in the next few hours after Asian and GCC exchanges plunged in value today and Britain unveiled a multi-billion dollar bank rescue attempt amid fears of a global recession, more bank collapses and the continuing credit freeze. The Dubai Financial Market has already lost nine per cent of its value this morning, coming on the back of a ten per cent fall on Japan's Nikkei market ? its largest fall since 1987 ? a five per cent fall in Hong Kong and six per cent plunge in Singapore.

The Indonesian market in Jakarta was suspended after falling ten per cent. Trading on the Dow Jones started well yesterday on hopes that central banks worldwide would cut interest rates, but optimism soon dropped off and the index fell by more than 500 points, or five per cent. The Dow is now at its lowest level for five years. This morning the British government announced it would invest at least 25 billion pounds (Dh161bn) in local banks to prop up their liquidity, following day after day of plunging bank stocks.

This will be achieved by the government buying preference shares in the banks, in effect, a partial nationalisation. Chancellor of the Exchequer, Alistair Darling, said the move was in order to provide "the necessary building blocks to allow banks to return to their basic function of providing cash and investment for families and businesses". In addition, at least 200bn pounds (Dh1.29 trillion) will be made available to British banks and building societies under a special liquidity scheme allowing them to strengthen resources and restructure their finances.

The institutions which will be supported are: Abbey, Barclays, HBOS, HSBC, Lloyds TSB, Nationwide Building Society, RBS and Standard Chartered. The US is now under pressure to cut interest rates, from their current level of two per cent, which Federal Reserve chairman Ben Bernanke has hinted he is ready to implement. [e-mail]