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NEW YORK: Global stock markets have gone into a dizzying fall as the collapse of US investment bank Lehman Brothers sparked fears that more bad news is on the horizon for the finance sector and the economy.
The blue-chip Dow Jones Industrial Average tumbled below 11,000 on Monday with a slide of 4.42 per cent to 10,917.51, its largest one-day point loss since the reopening after the September 2001 terrorist attacks.
The Nasdaq composite plummeted 3.60 per cent to 2,179.91 and the broad-market Standard & Poor's 500 index skidded 4.71 per cent to 1,192.70.
Investors were in near-panic mode because of the uncertainty about the knock-on effect of the collapse at Lehman, a former Wall Street titan with broad connections to other financial firms.
The emergency sale of Wall Street rival Merrill Lynch to Bank of America and worries about a possible collapse at insurance giant American International Group added to jitters.
"Lehman Brothers' decision to file bankruptcy and worries that the credit crisis could claim American International Group as the latest casualty are fuelling the fears on the Street," analysts at Charles Schwab & Co. said in a note to clients.
"Merrill's purchase has traders fretting that hidden problems abound and more firms could be looking at a fate similar to Lehman's."
In a bid to contain market turmoil the Bank of Japan has injected US$14.4 billion into money markets following the collapse of the US investment bank.
The central bank said on its website that it injected the sum onto the open markets at the start of the business day Tuesday.
Meanwhile central banks, led by the US Federal Reserve, have rushed to inject tens of billions of dollars into the money markets to head off any rush on liquidity as investors pulled money out of stocks and looked for safety.
Despite the moves, London's FTSE 100 index slumped 3.92 per cent to 5,204.20. In Paris, the CAC 40 tumbled 3.78 per cent to 4,168.97 and in Frankfurt the DAX shed 2.74 per cent at 6,064.16 points.
The Euro Stoxx 50 index of leading eurozone companies lost 3.67 per cent.
Asia tumbled first on the news Monday, followed by the Middle East, Russia and then Europe before the shockwave hit the North and South American markets.
"The collapse of Lehman Brothers has sent a major jolt through global financial markets as it is by far the biggest victim of the credit crisis that started in August 2007 and had been considered too big to fail," said Global Insight economist Howard Archer.
"There is obviously widespread concern about other banks' exposure to Lehman Brothers, not only in the US but also in Europe. Lehman's collapse also increases concerns that other banks could fail."
The dollar came under pressure as analysts said the US central bank's Federal Open Market Committee, set to meet Tuesday on interest rates, might be forced to cut rates in a further reassurance to markets. The Fed has kept its base rate at 2.0 per cent since April.
John Ryding at RDQ Economics said a rate cut might not solve the crisis but that some are concerned "about the damage to the markets that could be done if the Fed disappoints expectations."
In New York, Lehman shares, delisted from the New York Stock Exchange, plunged 94 per cent to 21 cents.
American International Group, one of the world's biggest insurance companies, slid 60.8 per cent on fears it may too face a death spiral from a cash crunch and possible credit downgrade.
Merrill Lynch, Lehman's white-shoe rival on Wall Street, managed to get a lifeline over the weekend with a deal to sell itself for US$50 billion to Bank of America. Merrill shares rose 0.06 per cent but Bank of America fell 21 per cent.
In Europe, the banks bore the brunt of the losses as the Lehman Brothers bankruptcy undercut any notion of business as usual, dealers said.
In London, HBOS plunged 36 per cent at one stage but managed to finish with a loss of 17.55 per cent, reflecting concerns about a bank that had to raise fresh cash earlier this year after massive losses on its US subprime exposure.
Royal Bank of Scotland, similarly in the firing line, lost 10 per cent and Barclays was down 9.84 per cent.
In Canada, the S&P/TSX index slid 4.04 per cent while the Brazilian Bovespa index, South America's largest, sank 7.59 per cent.
- AFP/ir/de
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