Stock markets plunge amid recession fear

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Shares in Japan, where the Nikkei index fell by more than nine per cent, were among the worst hit, while there were also steep declines in Hong Kong, Australia, Indonesia and South Korea.

This followed another sharp drop in Wall Street where shares closed five per cent down to take the overall fall in the US stock market to 13 per cent over the last five sessions.

Although some of the declines were triggered by concern about the continuing impact of the credit crunch, the main cause appeared to be wider fears about the prospects for the worldwide economy prompted by a raft of negative economic data.

In Japan, where the Nikkei index fell by 989 points — or 9.4 per cent — to 9,167, the loss of confidence was fuelled by figures showing a 34.5 per cent rise in corporate bankruptcies during the past year and concern about slowing demand for new cars and hi-tech products.

Analysts predicted that prospects there remained bleak and that there appeared to be no reason for investors to want to buy shares. "Selling seems almost unstoppable," said Kazuki Miyazawa of Daiwa Securities SMBC. In Australia, shares fell by five per cent despite a one per cent cut in interest rates, the biggest one-off reduction in
16 years. Angus Gluskie, of Sydney company White Funds Management, warned of a prolonged downturn. "We're probably looking at 12 to 18 months of global growth slowing," he said.

In Indonesia the stock market had to be suspended after the main Jakarta index fell by more than 10 per cent, while in Hong Kong the Hang Seng closed 5.5 per cent lower, despite a one per cent cut in interest rates.

Angry investors from failed Lehman Brothers bank clashed with police outside the city's Bank of China Tower in a sign of the heightening tension caused by the crisis.

In South Korea, the main Seoul index closed 5.8 per cent down taking it to its lowest level for 26 months.

The sharp declines have been fuelled by continuing doubts over whether the $700 billion US bank bail-out agreed last week will prove effective in easing the credit squeeze. In a further American move to address the crisis, Federal Reserve chairman Ben Bernanke hinted at more cuts in US interest rates.