World markets plunge once more

Shares tumbled again today as many global markets entered official bear market territory after one of the worst days on Wall Street since the collapse of Lehman Brothers in 2008.

Asian markets briefly recouped many earlier losses and European stocks opened higher. That rally proved short-lived, as investors worried about the consequences of the US credit downgrade, Europe’s debt crisis and mounting expectations of a global recession.

Many investors are looking for relatively safer assets to park their cash and the price of gold and the Swiss franc continued to rise to record levels.

“Many global equity markets have now entered bear market territory having fallen by over 20% from their recent peaks,” said Lee Hardman, an analyst at The Bank of Tokyo-Mitsubishi UFJ.

Europe’s declines followed big falls in Asia earlier. The retreat was led by Hong Kong’s Hang Seng, which tumbled 5.7% to 19,331.

US stocks were also poised for further falls at the open, a day after the Dow Jones industrial average fell a dizzying 634 points.

“It’s still very hard to predict how the US market will do,” said Jackson Wong, vice president of Tanrich Securities in Hong Kong. “When the dust settles, if the situation doesn’t get worse in the US or Europe, the situation will rebound. But the US has to stabilise.”

All eyes will be on the US Federal Reserve later when it holds its regular monetary policy meeting and in particular whether the central bank announces measures to stabilise markets and get the US economy going again.

“The odds now favour some form of further policy easing at tonight’s meeting,” said Kit Juckes, an analyst at Societe Generale.

Worries about the US economic recovery have been building since the government said that economic growth was far weaker in the first half of 2011 than economists expected. Intensifying concerns were reports showing that the manufacturing and services industries barely grew in July, although job growth was better than economists expected last month.

Investors are also worried that Italy and Spain could become the next European countries to have trouble repaying their debts. Greece, Ireland and Portugal have already received bailout loans because of Europe’s 21-month-old debt crisis.

The fears have pushed investors to shun Spanish and Italian bonds, which have led to higher yields and in even higher borrowing costs for the two countries.

Louise Cooper, an analyst at BGC Partners, said: ``Equity markets are fearing a double-dip recession.

“Economic growth can be affected by share price falls because essentially it makes businesses fearful for the future.

“And it affects ordinary people as well if your pension fund that you may have spent 10 or 20 years saving for has effectively gone down 10% or 20% in days.”

She said the Federal Reserve in the US may announce more quantitative easing later today in an attempt to allay fears about the global economic recovery.

She added: “If they don’t come up with something, it could be a bloodbath on equity markets.”

At points today, shares in all of the 100 biggest companies based in the UK were in decline, leaving the risers board empty.

Banking shares continued to bear the brunt of the turmoil as investors fretted about their exposure to indebted economies, such as Greece, and after heavy losses for counterparts in New York last night.

Taxpayer-backed Royal Bank of Scotland was the FTSE 100 Index’s biggest faller, down 10%. It has now lost a third of its value in the past two weeks, and at 24.5p per share is less than half the Government’s break-even point of 51p. Barclays and HSBC also dropped 6% today, while Lloyds fell 5%.

The price of gold continued to soar to highs of 1772 US dollars per ounce as it was seen as a safe haven amid the chaos.

Oil prices, which are often seen as an indicator of optimism in the global economy, continued to fall today.

Brent crude oil was down 3%, at one point slipping below 100 US dollars per barrel – a low not seen since February. It was at near 120 US dollars per barrel at the start of the month.