Stock markets across the world fell as emergency bank rescues and interest rate cuts failed to sufficiently reassure panicky investors.
Even the oil-rich Gulf states, which at one time seemed immune to the financial crisis affecting the West, suffered a collapse in confidence, while Russia suspended trading for two days to prevent a 14 per cent slide turning into a rout.
The world’s central banks went on the offensive on Wednesday with interest rate cuts in America, Britain, China, Canada, Sweden, Switzerland and by the European Central Bank.
The Bank of England’s decision to cut interest rates by half a per cent did at least bring some good news for home owners. Four million people with tracker mortgages will see an average £50 cut in their monthly payments.
Coupled with the banking bail-outs in America, Britain and parts of Europe, world leaders had hoped the emergency measures would finally stop the rot.
But the turmoil on the world’s markets continued. In London, the FTSE 100 shed 5.18 per cent to finish at 4,366 while in Paris the CAC 40 fell 6.39 per cent and Frankfurt was down 5.88 per cent. There were declines of 5.51 per cent on the Swiss Market Index, 5.20 per cent in Madrid, 5.71 per cent in Milan, 7.36 per cent in Brussels and 7.68 per cent in Amsterdam.
In New York, the markets fell sharply after opening. The Dow Jones did rally towards the end of the day’s trading but failed to rise above 10,000. The NYSE is now firmly on course for its worst year since 1937.
The stock market slumps were driven by falls in the value of commodities such as mining stocks, with major players such as Rio Tinto falling almost 10 per cent.
Shares in oil companies were also hit by recent falls in the price of crude oil.
The collapse in share prices in the Far East provided the clearest indication to date that the downturn is global.
Industry in Japan and China has been hit by a collapse in demand from America and Europe, which has finally caused investors to lose their nerve.
The Japanese Prime Minister, Taro Aso, said he was stupefied by the Tokyo market’s slide, one of the worst in its history, adding that he sensed “huge fears” among the public.
Hong Kong’s Hang Seng index ended down 8.2 per cent — its lowest level in more than two years.
Hironobu Hagi, the deputy general manager of the capital market division of Shinsei Bank, said: “No one knows for certain now what they can rely on. We’re seeing panic selling.”
In the Gulf states, $30?billion (£17.3?billion) was wiped off the value of shares traded on seven stock markets, and in Australia, the benchmark S&P/ASX200 closed down five per cent, wiping out gains made on Tuesday after the country’s central bank cut its key interest rate by one per cent.
Joshua Raymond, a market strategist at City Index, said of the interest rate cuts: “We will have to see whether this has any long lasting effect on confidence. What is good to see is the central banks making a co-ordinated and proactive effort to combat what is now a global economic problem. The fear is that this should have come about a week ago.”
Russia, Indonesia, Ukraine and Romania closed their stock exchanges yesterday, fearing catastrophic losses, while in Brazil, one of the world’s big four emerging markets, stocks fell for the fifth day running, taking cumulative losses to 22 per cent in the past week.
The International Monetary Fund published its annual World Economic Outlook, saying: “The world economy is entering a major downturn in the face of the most dangerous financial shock in mature financial markets since the 1930s.”
However, the influential IMF radically reduced its forecast for the British economy and warned that serious global problems lay ahead.
Olivier Blanchard, the IMF’s director of research, said it was essential that authorities around the world took concerted action to prevent the situation becoming even worse.
“The financial crisis has clearly got worse, and no country will be fully immune from the effects on the real economy,” he said.
“It is too late to avoid a slowdown, but strong and co-ordinated policies can avoid even worse scenarios.”
Meanwhile Britain’s banks, once ranked in the world’s top five for their soundness, slumped to 44th in a survey by the World Economic Forum.
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