The carnage on Wall Street reverberated across Europe today after US politicians rejected a $700bn (€487bn) bank rescue plan.
Britain’s FTSE 100 fell by as much as 3% in early trading, with particularly sharp declines in the banking sector. But the index then recovered, trading down only 0.15%.
Germany’s benchmark DAX index fell by nearly 1% while the Paris CAC-40 was barely down 0.20 %.
Meanwhile, Russia’s regulator was forced to halt regular trading in its two major markets after stocks plunged in the opening minute of trading.
In Ireland, however, the Government successfully bucked the downward trend by guaranteeing all the deposits and borrowings – worth around €400bn – with the country’s major lenders.
Some analysts were crediting Ireland’s unprecedented move with helping to keep European stocks overall from falling nearly as much as stocks in the United States and Asia did.
“The Irish Government’s blanket insurance could form a template for a European approach to this crisis,” said Rob Carnell, London-based chief international economist at ING Financial Markets.
The European Commission meanwhile urged the United States to show “statesmanship” in the financial crisis for sake of world economy.
EU Commission spokesman Johannes Laitenberger said the EU was disappointed the US House of Representatives rejected the rescue package adding that Washington had a “special responsibility” toward the global economy.
He insisted that European authorities had acted swiftly to keep markets going and help banks in trouble.
In Asia, most major stock markets fell in stunned dismay over the failure of the bailout plan.
Markets across Asia tumbled sharply as they opened amid fears that the setback could lead to a broader global financial crisis. But as trading progressed, many indices erased losses and Hong Kong’s market staged a dramatic turnaround to close slightly higher as investors scooped up beaten-down shares.
Some markets bounced back. Hong Kong’s Hang Seng index gained 0.76% to close at 18,016.21 after earlier plunging more than 5%. India’s Sensex was up 2.4 % in afternoon trading.
Investors were stunned by the US House of Representatives’ rejection of the emergency bailout package.
“This is a bad development,” Australian Prime Minister Kevin Rudd said, urging the US to urgently return to negotiations to come up with a deal that will prevent further infection of world markets.
In New York, the Dow Jones industrial average plunged 777 points, its biggest ever single-day drop, or nearly 7 %, to 10,365.45, its lowest close in nearly three years.
Japanese Prime Minister Taro Aso urged the country’s financial officials to closely monitor the situation and take appropriate measures to protect the world’s No. 2 economy.
Japan’s banks have relatively little exposure to the bad mortgages at the core of the global credit crisis, but investors are worried that a slowdown in the US and global economy will hurt demand for exports.
The Bank of Japan on Tuesday morning pumped another £15bn (€19bn) into money markets, as part of efforts by central banks worldwide to boost liquidity and bolster interbank lending.
The chaos sapped the dollar overnight. The greenback was trading at 104.32 yen Tuesday afternoon in Asia from above 106 yen a day earlier, adding further pressure on major exporters.
Markets in mainland China are closed this week for National Day celebrations, and Hong Kong will be closed tomorrow.