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World stock prices plunge amid 'general fear' of a new US recession, European debts

Global stock markets tumbled Friday amid fears the U.S. may be heading back into recession and Europe's debt crisis is worsening.
/ Source: msnbc.com news services

Global stock markets tumbled Friday amid fears the U.S. may be heading back into recession and Europe's debt crisis is worsening.

The sell-off follows the biggest one-day points decline on Wall Street since the 2008 financial crisis.

Oil extended sharp losses to fall below $84 a barrel amid expectations a slowing global economy will undermine demand for crude.

In Europe, major markets fell, adding to losses Thursday.

By about 7:12 a.m. ET, London's FTSE 100 had declined 2.28 percent to 5,269.93, according to a report on BBC News. Germany's DAX had shed 2.18 percent to 6,275.10 while France's CAC-40 had lost 0.64 percent to 3,299.12.

Japan's Nikkei 225 stock average closed down 3.72 percent at 9,299.88 and Hong Kong's Hang Seng dived 4.29 percent to 20,946.14. China's Shanghai Composite Index lost 2.13 percent to 2,627.08.

"Losses today have been indiscriminate," said IG Markets strategist Ben Potter in a report. "The big question on everyone's mind is what will happen across European and U.S. markets tonight and will there be any form of emergency policy response?"

The Dow closed Thursday down 512.76 points, at 11,383.68. It was the steepest point decline since Dec. 1, 2008.

Thursday's decline was the ninth-worst by points for the Dow. In percentage terms, the decline of 4.3 percent does not rank among the worst. On Black Monday in 1987, for example, the Dow fell 22 percent.

'Extremely fragile'
Investors fretted over the U.S. economic recovery ahead of Friday's release of crucial jobs figures for July, which often set the tone in markets for a week or two.

Many were also rattled by the lack of agreement in Europe about debt and how to stabilize the euro, said Tom Kaan of Louis Capital Markets in Hong Kong. He said they were watching to see if the U.S. Federal Reserve launches a new stimulus effort.

"It's a general fear that is clouding the markets at the moment," Kaan said.

"The economic outlook is stressing investors to a great degree and sentiment is likely to remain extremely fragile," Keith Bowman, equity analyst at Hargreaves Lansdown, told Reuters.

"The U.S. economy has been slowing and is moving into a phase where we are going to see spending cuts enforced," he added. "Investors are concerned as to where future growth will come from with this backdrop of debt for so many governments."

Automobile shares bore the brunt of the sell-off in Europe on concerns about weaker sales for vehicles, Reuters reported. The sector index fell 4.6 percent.

"Equity valuations are already pretty low but sentiment keeps deteriorating, so why come in and buy now?" said Shane Oliver, head of investment strategy at Sydney-based AMP Capital, which has more than $100 billion in assets under management.

David Gaud, Asia ex-Japan fund manager at Edmond de Rothschild Asset Management in Hong Kong, said there was "a rational reason for the markets to fall" and predicted bleaker times ahead.

"We need to face reality here," he said. "The second half is going to be much tougher than we thought."

Ominous sign
In an ominous sign, gold prices in the past 24 hours were soft despite the spiralling fears hurting risky markets. Investors were having to sell gold positions to cover losses elsewhere in their portfolios.

"This will not be a quiet day. Liquidity will be at a premium," a sales trader with a European bank said.

Elsewhere in Asia, South Korea's Kospi sank 3.7 percent to 1,943.75 and Taiwan's benchmark skidded 5.6 percent to 7,853.13. Australia's benchmark dropped 4 percent to 4,105.40 and India's Sensex shed 2.8 percent to 17,196.06.

In China, state-owned oil producer CNOOC Ltd. plunged 7.7 percent. China Construction Bank Ltd., one of the country's four major state-owned banks, lost 2 percent and Ping An Insurance Ltd. declined 3.9 percent.

Investors, already fidgety after protracted political bargaining to raise the U.S. debt limit and worries that Italy and Spain are getting deeply embroiled in Europe's debt crisis, searched for assets considered safer such as gold.

"Stocks will continue to dive, especially in Euroland, where profits are disappointing analysts' estimates," said Carl B. Weinberg of High Frequency Economics in a report.

In currency markets, the dollar edged down to 78.48 yen from late Thursday's 79.02 and the euro weakened gained to $1.4153 from $1.4130.

On Thursday, Japan's government intervened in markets to weaken the yen against the dollar to support exporters.

Finance Minister Yoshihiko Noda said authorities acted to protect the economic recovery following the March 11 earthquake and tsunami.

The dollar had fallen as low as 76.29 yen on Monday. It hit a record post-World War II low of 76.25 yen in the days following the March 11 earthquake and tsunami.

The intervention was coupled with monetary policy easing by the central bank's board.

Japan's moves came only a day after the Swiss National Bank intervened to slow a rise in the Swiss franc, another currency perceived as a save-haven at a time investors are fleeing risky assets such as shaky European government bonds.

Benchmark oil for September delivery was down $2.81 to $83.82 a barrel in electronic trading on the New York Mercantile Exchange. Crude tumbled $5.30 to settle at $86.63 on Thursday.

In London, Brent crude was off $1.26 at $105.99 barrel on the ICE Futures exchange.