Financial crisis pummels stocks

London’s key UK share index lost 6.5% and France’s Cac-40 tumbled 7%. On Wall Street, the Dow Jones fell below 10,000 points for the first time since 2003.

Earlier, Asian stocks had taken a hammering from investors.

A failure of government intervention to improve banks’ willingness to lend had left markets anxious, said analysts.

This was despite a $700bn (£398bn) US bank bail-out being passed late last week, and efforts by several European countries including Germany and Denmark to boost confidence in
their banks.

“The Fed’s bail-out plan may have been passed on Friday but so far there’s been no real reaction in credit markets and because of this the natural assumption is going to be that the
measures won’t work, even if such a call is rather premature,” said Matt Buckland of CMC Markets.

Stock markets are falling… and it’s the troubles of Europe’s banks, and the messy response of the authorities, that’s to blame
Robert Peston
BBC business editor

‘Substantial force’

In an attempt to reassure investors, the President’s Working Group on Financial Markets, said on Monday that it was moving quickly to exercise the new powers it had been given as part
of the Wall Street rescue package.

The group, which was formed after the 1987 stock market crash, said it would move “with substantial force on a number of fronts”.

As one of the first effects of the rescue plan, the Federal Reserve announced that it would start paying interest on the reserves that banks are forced to deposit at the central bank.

Analysts said that Germany’s increased 50bn euro ($68bn; £38.7bn) bail-out of Hypo Real Estate, the country’s second-biggest commercial property lender, had alarmed investors.

Germany earlier appeared to announce an unlimited guarantee for private savings – though later said this was not the case and had instead given only a “political commitment” that
savers would not lose deposits.

However, Denmark had already moved to offer full protection, while Sweden massively increased the level of protection it offered.

‘Collective action’

The Hypo RE rescue came amid other developments including:

• Iceland’s government offered unlimited guarantees on savers’ deposits. It had earlier agreed measures for the country’s banks to sell off some foreign assets in an attempt to
  shore up its entire financial system.
• Trading in shares of Benelux bank Fortis was suspended – the day BNP Paribas took a controlling interest in the troubled finance group under an emergency deal with the Belgian and
  Luxembourg governments
• Central banks across Europe – including the ECB and Bank of England – offered more than $74bn to banks in short-term loans in separate efforts aimed at trying to making cash
  available for the banking sector.
• International Monetary Fund managing director Dominique Strauss-Kahn said Europe needed a collective response to the financial crisis and warned countries not to act alone.
• Spanish Prime Minister Jose Luis Rodriguez Zapatero and French President Nicolas Sarkozy arranged meetings with the heads of their respective country’s main banks to discuss the
  global financial crisis – and said the two leaders would meet later this week.

Markets suspended

In London, the FTSE 100 index was down 324.6 points, or 6.5%, at 4,655.6 – having lost 8.5% at one point.

Germany’s Dax index lost 7%, while France’s Cac-40 index dropped 7.3% having fallen as much as 9.3% in mid-afternoon trade.

On Wall Street, the Dow Jones index pulled back some losses but was still 3.8% lower, down 392.5 points, at 9,932 points, while the Nasdaq lost 4.7%.

Earlier, Japan’s Nikkei index had closed down 4.3%, or 465 points, at 10,473.1 – its lowest close since February 2004. Hong Kong’s Hang Seng index slid 5%, while key Russian markets
slumped by 15%.

Markets in India, China, Australia and Singapore also lost ground, while the main Indonesian market lost 10% – the biggest one-day fall on record.

Trading on key stock markets in Brazil and Russia was temporarily suspended after share prices plummeted by 10% and 15% respectively. Russia’s RTS index ended 19.1% down.

The prospect of a slowdown denting energy demand saw oil prices fall further, dipping under $90 a barrel.

In London Brent crude dropped $3.38 to $86.87 a barrel, while US light, sweet crude fell $3.85 to $90.05 a barrel.