World stocks extend freefall on recession, bank fears

Global stocks tumbled further and safe bet gold surged to new records yesterday on mounting fears of fresh global recession amid weakening growth in top economies and poor liquidity at European banks.

European stock markets were slumping in midday trade with the banking sector again routed amid weak liquidity concerns, while Asian indices closed with huge losses after sharp declines on Wall Street overnight.

The euro inched lower against the dollar and the US currency dropped versus the yen, whose strength continued to hurt Japanese exporters.

“Weak data continues to make the hairs on the back of investors necks stand up and with volatility remaining high across global equity markets, the reaction in the markets to this sensitivity remains quick and severe,” said Joshua Raymond, chief market strategist at City Index traders in London.

London was down 2.55 per cent, Frankfurt shed 3.65 per cent, Paris lost 2.99 per cent, Madrid tumbled 2.94 per cent and Milan gave up 2.71 per cent. In Asia, Tokyo tumbled 2.51 per cent, hit by the double-whammy of global fears and the persistently strong yen, while Sydney shed 3.51 per cent and Seoul plunged 6.22 per cent.

“Further weak manufacturing data from the US and surprisingly poor German GDP this week increase the likelihood of a double-dip recession and recent evidence indicates there are also inflationary pressures in these weakening economies,” said Spreadex trader Jordan Lambert.

“This is a double blow to consumers as they now have price rises to deal with along with job insecurity which all leads to less disposable income. Despite the gloomy economic picture M&A activity continues.”

Hewlett-Packard, the world’s top personal computer maker, announced on Thursday that it was buying British enterprise software company Autonomy for $10.24 billion (€7.17 billion).

HP said it would purchase all of the outstanding shares of Autonomy for $42.11 a share in cash, a premium of 64 per cent over Autonomy’s closing price on the London Stock Exchange on Wednesday. Autonomy’s share price jumped 75 per cent yesterday.

With trillions of dollars wiped off global stock markets in recent weeks, cash-rich companies are seizing bargains. Google shook up the mobile phone industry on Monday with the announcement it was buying US smartphone maker Motorola Mobility for $12.5 billion.

London-based brewer SABMiller meanwhile launched a hostile bid for Australian beer giant Foster’s on Wednesday worth $10 billion.

Elsewhere, gold continued to benefit from the stock market turmoil, with the precious metal striking a record high of $1,868.63 an ounce on the London Bullion Market.

“Flights to safe haven asset plays such as gold, which remains the defensive trade of choice, have continued,” said analyst Raymond.

New worries about a second recession in the United States and Europe, prompted by an investment bank report, sent US stocks into a new sharp fall on Thursday.

The Dow Jones Industrial Average closed down 3.68 per cent, the broader S&P 500 sank 4.46 per cent and the tech-heavy Nasdaq Composite dived 5.22 per cent.

The spark to the new fall was a Morgan Stanley report warning that global growth was slowing and that the United States and Europe were on the precipice of plunging into a new recession, two years after the end of the last one.

In foreign exchange deals yesterday, the euro was slightly down at $1.4333 compared with $1.4337 late in New York on Thursday. The dollar dropped to 76.39 yen from 76.52 yen on Thursday.