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LONDON - Europe's leading stock markets dived more than five per cent on Monday on concerns over the battered world economy as Wall Street giant Lehman Brothers filed for bankruptcy.
Major central banks, led by the US Federal Reserve, rushed to inject tens of billions of dollars into money markets as Asian indices also closed sharply lower and Gulf markets shed up to seven per cent in value.
Elsewhere, the dollar briefly plunged against the euro and oil prices slumped to seven-month lows of below 93 US dollars a barrel.
"News that Lehman Brothers had filed for bankruptcy protection has helped to plunge European, Asian and now US index futures heavily lower," said CMC Markets dealer Ian Griffiths. Wall Street was to open at 1330 GMT.
"This story is likely to dominate proceeding for the next few sessions, dragging financial stocks further in to the red creating yet more fears over the strength of the global financial system," added Griffiths.
"The news will totally eclipse the fact that oil is trading below 100 dollars per barrel which usually would have boosted sentiment."
Europe's main stock markets recorded falls of more than five per cent in early afternoon trade as investors awaited the reopening of Wall Street.
"The weekend news (regarding Lehman) was certainly dramatic," said Mike Estrey, research director at Fyshe Horton Finney stockbrokers.
"We are seeing a triple-digit (points) drop on the FTSE and the July lows both in the US and UK might certainly be aimed for this week," he added.
The British and US stock markets had struck the lowest levels for about two years in July.
In afternoon European trade, the Paris CAC 40 index of leading shares was down 5.60 per cent, London had shed 5.25 per cent and Frankfurt revealed a loss of 4.60 per cent from Friday's close.
Amid the fallout, the head of the British Bankers' Association, Angela Knight, told AFP that Britain's commercial banking sector was "safe and sound".
German banks' links to the collapsed Lehman Brothers were meanwhile "manageable and can be dealt with," the German finance ministry said, adding it was in close contact with its international partners.
Share-price losses were also steep across Asia, with Taiwan stocks ending down 4.09 per cent and Philippine shares off 4.2 per cent. Sydney fought back slightly from earlier losses to end the day down 1.8 per cent.
Singapore closed down 3.27 per cent and Indian shares tumbled 3.35 per cent. But the worst hit of Asia's bourses was Jakarta, which was 4.7 per cent off.
Several major markets in the region, including Tokyo, Hong Kong, Shanghai and Seoul were closed for public holidays.
In the markets that were trading, financial sectors suffered most as investment bank Lehman Brothers, hard-hit by the US sub-prime real estate meltdown, staged a last-ditch effort to find a buyer.
When it failed, the Wall Street titan announced that it intended to file for bankruptcy "in order to protect its assets and maximise value."
Bank of America meanwhile said it was buying Merrill Lynch for 50 billion US dollars in a transaction that creates the world's largest financial services company.
The New York Times reported that US insurance giant AIG was seeking a 40-billion-US-dollar bridge loan from the Federal Reserve in the face of a possible downgrade from credit ratings agencies that could spell its doom.
The Federal Reserve and major global banks opened up fresh credit as markets braced for its collapse, with many fearing a domino effect that would ravage the rest of the global financial system.
"Obviously, with Lehman looking to file for bankruptcy protection, Bank of America buying Merrill Lynch and AIG under pressure to sell assets, you've probably seen more in one day of financial history than we've seen since the great crash of 1929," Macquarie Private Wealth associate director Marcus Droga told Dow Jones Newswires.
"I'm not suggesting the US market will crash tonight, but in terms of landmark events, it's an historic day," said Droga.
- AFP/ir
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