US crude oil prices sank nearly six percent yesterday after a fresh plunge in global stock markets, as traders fretted over warnings about a new vicious recession that could slam demand for energy.
More weak data fuelled concern that the world was heading for another recession, and after the US Federal Reserve reportedly expressed concerns over European banks’ liquidity.
The Dow Jones Industrial Average fell 419.63 points (3.68 percent) to 10,990.58 in closing trade, following an earlier rout on Europe's bourses.
Traders’ screens were awash with red, as Madrid, Milan and Paris equities also plunged more than six per cent, while London, Paris and Zurich shed more than five per cent in a panicky sell-off.
The toxic cocktail of negative news sent gold flying to fresh records above $1,826 per ounce as investors sought the safe-haven precious metal, while oil prices slid even lower on worries about dwindling future demand for energy.
The European single currency fell against the dollar, to $1.4320 from $1.4420, as investors sought to lessen their risk exposure, dealers said.
In London, the FTSE 100 index of leading companies closed down 4.49 per cent at 5,092.23 points. In Frankfurt, the main DAX index plunged 5.82 per cent to 5,602.80 points and in Paris the CAC 40 tumbled 5.48 per cent to 3,076.04 points.
Other European markets showed similar sharp losses, with Milan losing more than six percent and Madrid off 4.70 per cent.
The banks were especially badly hit, with French lenders under intense pressure. Société Générale lost more than 12 per cent, with BNP Paribas off 6.76 per cent and Crédit Agricole down 7.29 per cent.
“Sentiment on financial markets has deteriorated noticeably over recent weeks,” said economist Nick Kounis at ABN Amro.
“Equity prices have fallen sharply, reflecting heightened worries of a recession,” he added.
Traders were reacting to a report in the Wall Street Journal that the Fed is concerned European banks might be forced to repatriate funds from US subsidiaries in the event of a liquidity shortage.
“Federal and state regulators, signalling their growing worry that Europe’s debt crisis could spill into the US banking system, are intensifying their scrutiny of the US arms of Europe’s biggest banks,” the business daily said.
Analysts said the report had served as a wake-up call for any traders who had forgotten previous warnings from the European Central Bank, which on August 6 said it was ready to provide extra liquidity.
“A brutal day so far for equity markets with financials under pressure, not helped by the Sarkozy-Merkel proposals for a financials transaction tax but also by worries that a key eurozone bank is in trouble,” said VTB Capital economist Neil MacKinnon.
The blue-chip Dow Jones Industrial Average was down 3.44 per cent at around 1600 GMT.
Fresh plans to tackle the eurozone debt crisis have clearly failed to win over investors, who brushed off Tuesday’s summit meeting between French President Nicolas Sarkozy and German Chancellor Angela Merkel.
Asian stock markets slid earlier yesterday, with Tokyo down 1.25 per cent to record its lowest finish since March 15 - four days after Japan was hit by an earthquake and tsunami that spiralled into a nuclear disaster. Elsewhere, Sydney shed 1.22 per cent, Seoul dropped 1.70 per cent and Hong Kong lost 1.34 per cent.