GLOBAL stock markets continued plummeting for a second day today, amid fears that a possible US recession will cause a worldwide economic slowdown.
The stock market went into meltdown yesterday as £84 billion was wiped off City of London shares – the biggest fall since the financial crisis precipitated by the 9/11 terrorist attack on New York.
At the end of a day of frantic trading, the UK FT
SE 100 index dropped 5.5 per cent to 5,578.2, amid fears of a recession.
That pattern was repeated around the world as other markets went into freefall. The CAC-40 in France plunged even further, dropping 6.8 per cent to 4,744.15, while Germany's blue-chip DAX 30 slumped 7.2 per cent to 6,790.19.
This morning, Japan's Nikkei 225 index, the benchmark for Asia's biggest bourse, skidded 4.4% in morning trading to 12,738.31 points, after dropping 3.9% yesterday. Hong Kong's Hang Seng index was down 7.2% after plunging 5.5% the day before.
The dramatic declines in Asia and Europe were expected to spread to Wall Street, where stock index futures were already down sharply hours before the trading day began.
Finance ministers and stock-market traders will today watch anxiously for Wall Street's reaction to yesterday's global shares crash.
The stock-market plunge came on the day that Alistair Darling, the Chancellor, unveiled the UK government's proposals to rescue the Northern Rock bank.
Mr Darling's plan to underwrite the mortgage lender with Treasury bonds was forced on the government by the continued crisis from the subprime mortgages fallout.
Today, attention will turn to Wall Street – closed yesterday for the Martin Luther King holiday – with investors looking nervously to see whether the dramatic falls continue in the US.
Last night, the indications from the sale of "stock futures" – a reflection of what shares will be worth over the next few weeks and months – suggested that Wall Street will follow the worldwide fall. If US stocks open today at the levels the futures prices were indicating last night, it would push the market dangerously close to a "bear market", a 20 per cent drop from its peak in October.
That in turn could have the effect of leading to further selling of shares in other stock markets across the world, increasing the likelihood of a full-blown recession engulfing the world.
In a day of stock market turbulence, Scotland's leading financial institutions were unable to avoid the fallout from the crash, with Royal Bank of Scotland shares falling by more than 8 per cent to 342p.
The drop means that the value of the shares in RBS, a global player in banking, has fallen by more than 50 per cent from their high of just six months ago.
HBOS dropped by just over 4 per cent to 610p, while Standard Life fell by just under 4 per cent to 203p.
Last night, one leading analyst warned that the consequences of the falls yesterday could hit the world economy. David Cohen, director of Asian economic forecasting at Action Economics in Singapore, said: "People are certainly nervous about a potential recession in the US spilling over to the rest of the world."
A measure of that concern came from the reaction in Europe. Pedro Solbes, the Spanish economy minister, said: "We are worried in the sense that we have to follow every hour."
Yesterday, Joaquin Almunia, the EU's economic and monetary affairs commissioner, sought to calm fears of recession, saying that the market upheaval was "logical".
Mr Almunia said he hoped a £70 billion tax-relief plan proposed last week by President George Bush would counter a possible recession in the US. He added: "It seems that markets are considering the possibility of a more pronounced slowdown, even a recession, in the US, so it is a logical reaction.
"But I hope they will also pay attention to real information about the economy – in particular in Europe – and they will become more quiet."
Francis Lun, of Fulbright Securities in Hong Kong, said: "It's another horrible day."
He said the markets had continued to fall because of "disappointment" at the measures proposed by President Bush.
The markets felt that it was, "too little, too late and investors feel it won't help the economy recover", he added.
Paul J Nolte, director of investments at Hinsdale Associates in the US, added to the gloom.
He said: "We're going for some tough slugging here. The breadth and the depth of subprime and housing market and its impact on the economy has everybody concerned. Most of the indications are we are in a recession."
President Bush hopes that his package of temporary tax cuts and other measures will boost spending in America.
The president appealed to Congress for the plans to be implemented quickly to "keep our economy growing and create jobs".
Mr Darling and Gordon Brown, the Prime Minister, will be watching developments in the US with trepidation.
A recession in the US could have a serious knock-on effect on the UK economy.
