LONDON - Recession fears stalked trading floors around the world Wednesday, sparking major losses in Asia, Europe and on Wall Street as investors weighed prospects for a prolonged global downturn.
The realization that a worldwide financial crisis is now likely to taint the broader economy, driving down growth, employment and corporate profits, depressed sentiment.
"Any hope that a degree of normality may have returned to the market seems to be premature," said CMC Markets dealer Jimmy Yates.
"It's the threat of recession and downbeat earnings outlooks that seem to be dominating for the time being."
Share prices on Wall Street fell hard in early deals, with the Dow Jones Industrial Average down 3.58 percent at 8,710.68 at mid-day, while the tech-heavy Nasdaq was 1.79 percent in negative territory at 1,166.24.
"The (corporate) earnings news hitting the tape over the last two days is more pessimistic than that received from companies reporting earlier this month," said Fred Dickson, chief market strategist at DA Davidson & Co.
"It appears that investors are rethinking their assumptions about the depth and duration of the recession, recognizing that the credit crisis has taken an annoying economic slowdown into something far more serious," he said.
Patrick O'Hare, analyst at Briefing.com, said there were many issues stoking investors' concerns about global recession.
"Oil prices below 70 dollars per barrel, an acknowledgment from Bank of England governor (Mervyn) King that a UK recession seems likely, further job cut announcements in the US, heavy losses in foreign markets, and a litany of companies sounding a cautious view on 2009 prospects have all played a role in the market's economic concerns," O'Hare said.
In another move to get cash flowing again through the squeezed financial system, the Federal Reserve said it would raise the interest rate it pays on reserves deposited with it by banks, effective Thursday.
On Tuesday, the Fed announced that it was offering up to 540 billion dollars of help to money market mutual funds.
Wednesday's rout started in Asia, where Tokyo lost 6.79 percent and Hong Kong 5.2 percent, and then spread to Europe, where a blunt warning from British Prime Minister Gordon Brown cast a shadow over the trading day.
"We must now take action on the global financial recession which is likely to cause recession in America, France, Italy, Germany, Japan and -- because no country can insulate itself from it -- Britain too," Brown told lawmakers.
His comments echoed those of Bank of England governor Mervyn King who warned late Tuesday that Britain was "likely" entering a recession -- which is defined as two successive quarters of negative economic growth.
The London FTSE fell 4.46 percent to 4,040.89 while in Paris the CAC 40 plunged 5.10 percent to 3,298.18. The Frankfurt Dax dropped 4.46 percent to 4,571.07.
Among the hardest hit markets was Madrid, which plummeted 8.16 percent as Spanish companies operating in Argentina were hammered by the Buenos Aires government's move to nationalise private pension funds.
Oil and energy group Repsol YPF, which is to list part of its Argentina affiliate YPF on the Buenos Aires stock market, dropped 15.75 percent to 15.08 euros on Madrid's Ibex-35 index.
Argentine President Cristina Kirchner moved Tuesday to nationalize 30 billion dollars in private pension funds, saying it was necessary to protect retirees in the global financial crisis.
The main index for Argentina's stock market fell 16.17 percent on Wednesday.
"The rolling chaos of the last year's financial crisis seems to be gaining strength in the smaller markets, with Argentina now close to financial collapse," said Simon Denham of Capital Spreads.
Elsewhere in Europe there were declines Wednesday of 5.3 percent in Amsterdam, 6.14 percent in Brussels, 4.20 percent on the Swiss Market Index and 3.57 percent in Milan.