World stocks fall on US economic slump

March 2, 2009 1:47:19 PM PST
World stock markets tumbled Monday, with benchmarks in Britain and Japan sinking 4 percent, as the worsening U.S. recession and more evidence of deep rot in the financial industry dashed hopes of a global recovery later this year. Britain's FTSE 100 sank to lows not seen since April 2003. The index fell to 3,653 before recovering slightly to be down 4.1 percent at 3,674.71.

"Today's move to beneath the previous low raises the real prospect of another significant tumble, with 2003 lows of around 3,300 a popular target in the medium term," said David Jones, chief markets strategist at IG Index.

Germany's DAX fell 2.6 percent to 3,744.15, and France's CAC 40 lost 3.1 percent at 2,618.45.

Wall Street headed for another big drop, one that could hurl the Dow Jones industrials below 7,000, after American International Group Inc. posted the largest quarterly loss in U.S. corporate history. The Dow Jones industrial average has dropped for six consecutive months, and is worth less than half of its October 2007 record high of 14,164.53.

Ahead of the market's open, Dow futures tumbled 1.7 percent to 6,922. Standard & Poor's 500 index futures sank 1.8 percent to 717.80, while Nasdaq 100 index futures lost 1.6 percent at 1,095.50.

In Europe, HSBC PLC led the decline after it reported a 70 percent drop in 2008 net profit and said it would raise 12.5 billion pounds ($17.7 billion) in new capital through a share issue while cutting 6,100 jobs in the United States. Shares in Europe's largest bank by market value plummeted 20 percent.

"It has been reasonably well-flagged they were going to raise money, but when you get 12.5 billion announced it's still quite a lot of money for people to find," said Jane Coffey, head of equities at Royal London Asset Management.

Other banks also pulled the markets down. In London, Lloyds Banking Group lost 11 percent and Standard Chartered fell 9 percent. In Paris, BNP Paribas slipped 8 percent, and in Frankfurt Commerzbank plunged 7 percent.

Concerns that European economies would continue to suffer lingered after German Chancellor Angela Merkel and other EU leaders flatly rejected a new multibillion euro (dollar) bailout for eastern Europe at a summit in Brussels on Sunday. They suggested that additional aid be given to struggling nations only on a case-by-case basis.

"Over the weekend we haven't really had a great deal of help from the governmental discussions, with eastern Europe still looking in a horrible state and not really getting the support from the rest of Europe, so again that's another concern - that the economies are contracting quite aggressively," said Coffey.

As in U.S., where Wall Street indexes retreated to 12-year lows, investors in Asia and Europe were shaken after figures Friday showed U.S. gross domestic product in the world's largest economy withered at a 6.2 percent annual pace at the end of last year.

The decline, worse than most economists had expected, was America's sharpest since 1982.

Aggravating fears that the global economic crisis won't end anytime soon were signs that the world's financial firms, already infused with billions of dollars in government aid over the last year, need still more capital to make up for their colossal losses on bad assets.

Insurance stocks fell in Europe after news the U.S. government would give faltering insurer American International Group a $30 billion bailout - its fourth government rescue. That followed last week's news that hobbled banking giant Citigroup Inc. agreed to turn over a huge stake, up to 36 percent, to the U.S. government.

"You're seeing the U.S. is sinking lower and lower, and we're still desperately searching for a bottom," said John Mar, co-head of sales trading at Daiwa Securities SMBC Co. in Hong Kong. "It's death by a thousand cuts, a slow death right now."

In Asia, Tokyo's Nikkei 225 stock average dropped 3.8 percent to 7,280.15, while Hong Kong's Hang Seng lost 3.9 percent to 12,317.46. Markets in Australia, Taiwan and Singapore shed about 3 percent or more, while South Korea's Kospi plummeted 4.2 percent.

Investors are increasingly worried because mounting losses in the financial industry raise the prospect of greater government stakes and other capital-raising moves that can ultimately dilute shares and lower their price. Furthermore, lending markets are likely to remain comatose as long as banks are teetering, making it near impossible for the world economy to stage any meaningful rebound.

Oil prices weakened in European trade, with benchmark crude for April delivery down $1.18 at $43.58. Last week in the U.S., the contract fell 46 cents to settle at $44.76 a barrel on the New York Mercantile Exchange.

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AP business writer Jeremiah Marquez in Hong Kong contributed to this report.

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