World stocks fall on US economic slump, bank woes

World stocks tumble as US economic downturn, bank woes erode recovery hopes

LONDON (AP) -- World stock markets tumbled Monday, with benchmarks in Britain and Japan sinking 4 percent, as the worsening U.S. recession and more evidence of deep rot in the financial industry dashed hopes of a global recovery later this year.
By noon in mainland Europe, Britain's FTSE 100 was down 4.1 percent to 3,672.05, Germany's DAX fell 2.9 percent to 3,733.93, and France's CAC 40 lost 3.4 percent at 2,610.34.

HSBC led the decline after it reported a 70 percent drop in 2008 net profit and said it would raise 12.5 billion pounds ($17.7 billion) in new capital through a share issue while cutting 6,100 jobs in the United States. Shares in Europe's largest bank by market value plummeted 20 percent.

"It has been reasonably well-flagged they were going to raise money, but when you get 12.5 billion announced it's still quite a lot of money for people to find," said Jane Coffey, head of equities at Royal London Asset Management.

Other banks also pulled the markets down. In London, Royal Bank of Scotland lost 7 percent and Standard Chartered fell 10 percent. In Paris, BNP Paribas slipped 9 percent, and in Frankfurt Commerzbank plunged 14 percent.

Concerns that European economies would continue to suffer weighed on investors after German Chancellor Angela Merkel and other EU leaders flatly rejected a new multibillion euro (dollar) bailout for eastern Europe at a summit in Brussels on Sunday. They suggested that additional aid be given to struggling nations only on a case-by-case basis.

"Over the weekend we haven't really had a great deal of help from the governmental discussions, with eastern Europe still looking in a horrible state and not really getting the support from the rest of Europe, so again that's another concern -- that the economies are contracting quite aggressively," said Coffey.

As in U.S., where Wall Street indexes retreated to 12-year lows, investors in Asia and Europe were shaken after figures Friday showed U.S. gross domestic product in the world's largest economy withered at a 6.2 percent annual pace at the end of last year.

The decline, worse than most economists had expected, was America's sharpest since 1982.

Aggravating fears that the global economic crisis won't end anytime soon were signs that the world's financial firms, already infused with billions of dollars in government aid over the last year, need still more capital to make up for their colossal losses on bad assets.

Insurance stocks fell in Europe after news the U.S. government would give faltering insurer American International Group a $30 billion bailout -- its fourth government rescue. That followed last week's news that hobbled banking giant Citigroup Inc. agreed to turn over a huge stake, up to 36 percent, to the U.S. government.

"You're seeing the U.S. is sinking lower and lower, and we're still desperately searching for a bottom," said John Mar, co-head of sales trading at Daiwa Securities SMBC Co. in Hong Kong. "It's death by a thousand cuts, a slow death right now."

U.S. futures pointed to more pain on Wall Street Monday. Dow Jones futures were down 128 to 6,924 and Standard & Poor's futures fell 16 to 718.30.

Earlier in the day, every major market in Asia convulsed with selling, with Japanese and South Korean currencies taking big hits.

Tokyo's Nikkei 225 stock average dropped 288.27, or 3.8 percent, to 7,280.15, while Hong Kong's Hang Seng lost 494.11 points, 3.9 percent, to 12,317.46. Markets in Australia, Taiwan and Singapore shed about 3 percent or more.

In South Korea, the Kospi plummeted 4.2 percent as investors dumped the country's currency, the won, which hit fresh 11-year lows on pessimism about the global economy and local fears of a dollar shortage.

Equities markets in the U.S. suffered a similar rout on Friday, when the Dow fell 119.15, or 1.7 percent, to 7,062.93 -- its lowest close since May 1, 1997.

The Standard & Poor's 500 index fell 17.74, or 2.4 percent, to 735.09, in its worst finish since Dec. 18, 1996. In a troubling sign, the index fell below its Nov. 21 trading low of 741.02.

Investors are increasingly worried because mounting losses in the financial industry raise the prospect of greater government stakes and other capital-raising moves that can ultimately dilute shares and lower their price. Furthermore, lending markets are likely to remain comatose as long as banks are teetering, making it near impossible for the world economy to stage any meaningful rebound.

Oil prices weakened in European trade, with benchmark crude for April delivery down $1.18 at $43.58. Last week in the U.S., the contract fell 46 cents to settle at $44.76 a barrel on the New York Mercantile Exchange.

AP business writer Jeremiah Marquez in Hong Kong contributed to this report.