Global stocks slumped Thursday as more weak data fuelled concern that the world was heading for another recession, and after the US Federal Reserve reportedly expressed concerns over European banks' liquidity.
Traders' screens were awash with red, as Madrid, Milan and Paris equities plunged more than 6.0 per cent, while London, Paris and Zurich shed more than 5.0 per cent.
The toxic cocktail of negative news sent gold flying to fresh records above $1,826 per ounce as investors sought the safe-haven precious metal, while oil prices slid even lower on worries about dwindling future demand for energy.
Banking stocks in Paris were particularly hard hit on Thursday, with BNP Paribas off 8.24 per cent, Credit Agricole down 9 per cent and Societe Generale lost more than 12 per cent.
'Sentiment on financial markets has deteriorated noticeably over recent weeks,' said economist Nick Kounis at ABN Amro. 'Equity prices have fallen sharply, reflecting heightened worries of a recession,' he added.
Traders were reacting to a report in the Wall Street Journal that the Fed is concerned European banks might be forced to repatriate funds from US subsidiaries in the event of a liquidity shortage.
'Federal and state regulators, signalling their growing worry that Europe's debt crisis could spill into the US banking system, are intensifying their scrutiny of the US arms of Europe's biggest banks,' the business daily said.
Wall Street also plunged by about 4.0 per cent in opening trade on Thursday after investment bank Morgan Stanley warned that the United States and Europe were teetering on the brink of a new recession.
European Union president Herman Van Rompuy's assurances that there was 'no new recession' in sight in Europe failed to calm nerves.
Morgan Stanley also slashed its 2011 global growth estimate to 3.9 per cent from 4.2 per cent, and its 2012 forecast to 3.8 per cent from 4.5 per cent.
Adding to the market fears, the US Federal Reserve Bank of Philadelphia said that manufacturing in the mid-Atlantic states took a sharp hit in August.
The bank said manufacturing activity 'dipped significantly,' lowering its index to negative 30.7 in August from positive 3.2 in July.
Data showing that new claims for US unemployment insurance rose last week also spooked investors. The figures showed new claims rose to 4,08,000 — a gain of 9,000 from the previous week.
New York's Dow Jones Industrial Average was down 3.9 per cent to 10,967.31 in the first hour of trading on Thursday.
At the same time, US Treasury bond yields plunged Thursday, with the 10-year yield — the return earned by investors — hitting a record low as recession worries battered sentiment.
The 10-year Treasury yield fell to 1.974 per cent, lower than the previous record during the US 'Great Recession,' before recovering slightly to 2.007 per cent, while the 30-year hit 3.337 per cent before rebounding to 3.371 per cent.
Asian stock markets slid earlier on Thursday, with Tokyo down 1.25 per cent to record its lowest finish since March 15 — four days after Japan was hit by an earthquake and tsunami that spiralled into a nuclear disaster.
Source : New Age
