Stock markets plunge as fear mounts over return to recession (From The Northern Echo)

Stock markets plunge as fear mounts over return to recession

8:00am Saturday 6th August 2011 in News By Andrew Douglas, Deputy News Editor

STOCK markets around the world plunged again yesterday as fears grew that the global economy would slip back into recession.

The FTSE 100 Index ended a week-long slide in which it saw 9.8 per cent - or £147.9 billion - wiped off its value.

That was the worst performance since October 2008 when investment bank Lehman Brothers collapsed and triggered turmoil in global financial markets, marking the start of the credit crunch.

Markets across the world plummeted amid fears the United States is heading back into recession and Europe's debt crisis is worsening.

Analysts believe the plunge in share prices may worsen unless Governments take firm action to convince the markets they can pay off their loans.

''This crisis will run and run, and could make Lehmans look like a Tupperware party," warned Michael Hewson, a market analyst at CMC Markets.

''The nervousness amongst traders is likely to continue into next week because...the American economy is still showing significant signs of slowing down.

''The bigger problem is the Eurozone and the absence of any concrete measures to stabilise Italy and Spain's precarious fiscal position.''

Prime Minister David Cameron, holidaying in Italy, last night spoke to German counterpart Angela Merkel about the European and US financial instability.

He is also in contact with Chancellor George Osbourne, who is in the US, and Deputy Prime Minister, Nick Clegg, who is in France.

Foreign Secretary William Hague - the most senior Cabinet minister remaining in the UK - insisted the Government was "fully functioning" and a team of senior ministers, including Business Secretary Vince Cable, are working on the issue.

The Richmond MP, who yesterday chaired an urgent meeting on the economic crisis, stressed that ministers had taken the "necessary action" and now needed to "follow it through with clarity and confidence".

The FTSE 100 Index fell 146.2 points, or 2.7 per cent yesterday while the CAC 40 in France and the DAX in Germany fell 1 per cent and 3 per cent respectively.

In America, the Dow Jones lost nearly 1 per cent of its value in early trading following its 4.3 per cent fall on Thursday, but gained 1 per cent later on.

Meanwhile in the Far East, Japan's Nikkei 225 stock average slid 3.4 per cent, Hong Kong's Hang Seng dropped 4.4 per cent, South Korea's Kospi index shed 3.6 per cent, and Australia's benchmark dropped 4 per cent.

There are rising fears that Italy and Spain, the Eurozone's third and fourth largest economies, could default on their debt repayments and require EU-funded bailouts.

The plunge in global markets is further bad news for Mr Osbourne, who has faced increasing pressure over the pace of Britain's economic recovery.

Robert Chote, chairman of the Office for Budget responsibility, said the watchdog's growth forecast of 1.7 per cent - made in March - was likely to be missed.

Louise Cooper, an analyst at BGC Partners, said: ''The banking industry is yet again facing a crisis - we are not yet at the post-Lehman days, but the system is creaking loudly.

''The horrible reality is that those leaders in charge of our economy have no answers.''

However, last night Mr Cable dismissed suggestions the UK Government lacked leadership.

"We are very well organised, very well prepared to deal with this position," he added.

"We are not at the centre of this crisis. Britain is an oasis of calm at the middle of what are global financial upheavals. We are seen as a safe haven because our public finances are under control.

"There's absolutely no reason why anybody should panic.

"There were problems in the United States but they've been resolved, there were problems in the Eurozone but the Eurozone countries have come forward with a realistic plan to deal with Greek debt and to solve the problems of other countries caught up in liquidity problems."