Gloom returns to world markets after US plunge

NEW YORK (Associated Press) - Gloom and volatility returned to Asian and European markets Tuesday as investors dumped stocks following huge overnight losses on Wall Street and dismal U.S. economic reports revived fears of a global recession. Oil prices fell to three-year lows.

World markets rallied last week, but any nascent investor confidence quickly wilted after grim U.S. economic figures sent the Dow Jones industrial average plummeting nearly 700 points _ or 7.7 percent _ Monday, wiping out more than half of last week's big gains.

"I saw that figure this morning, and I thought: Oh, no. Here we go again," said Peter Wright, an associate at Burrell Stockbroking, as he watched Australian shares plummet from the opening bell.

Australia's central bank slashed its key interest rate Monday a full percentage point to 4.25 percent in an attempt to prevent the economy from sliding into recession. But investors took scant comfort from the move, sending the benchmark S&P/ASX 200 index down 4.2 percent to 3,528.2.

Japan's Nikkei 225 stock average tumbled 533.53 points, or 6.4 percent, to 7,863.69, and Hong Kong's Hang Seng index lost5 percent to 13,405.85.

Tuesday's losing streak extended into Europe, where all major benchmarks retreated in early trading. Losses, however, were milder than in Asia. The FTSE 100 index of leading British shares was down 1 percent, Germany's DAX fell 0.4 percent, and the CAC-40 in France was 1.3 percent lower.

U.S. stock futures pointed to slight gains for Wall Street's next session. Dow futures were up 76 points, or 0.9 percent, at 8215 and S&P futures rose 8.8 points, or 1.1 percent to 824.60.

Kazuhiro Takahashi, an equity strategist at Daiwa Securities SMBC in Tokyo, said the market was under heavy selling pressure as investors braced for more bad news ahead from the U.S., including jobs data for November on Friday.

"It will be yet another sign confirming the U.S. economic deterioration," Takahashi predicted. "Investors are simply unable to find any positive leads right now."

Benchmarks in the Philippines, Taiwan, India and South Korea also dropped sharply.

Markets on mainland China were mixed, with food processors up following a lifting of price controls but banks down on economic jitters. The benchmark Shanghai Composite Index slipped 0.3 percent, while the Shenzhen Composite Index rose 1.4 percent.

Analysts said investors were uneasy about U.S. turmoil even though China keeps its markets isolated from global financial flows.

"It reflected the worries of investors about the American economy, and China is getting more and more integrated to the world," said Mao Sheng, an analyst for Huaxi Securities.

U.S. stocks first slid on initial reports that the first weekend of the holiday shopping season, while better than some retailers and analysts feared, saw only modest gains. Downbeat reports on the manufacturing sector and construction spending further unnerved investors.

Then the National Bureau of Economic Research, considered the arbiter of when the economy is in recession or expanding, said the U.S. recession had begun a year ago, in December 2007. By one benchmark, a recession occurs whenever the gross domestic product, the total output of goods and services, declines for two consecutive quarters. But the NBER's dating committee uses broader and more precise measures, including employment data.

The bleak outlook for the U.S. economy drove oil prices to three-year lows in Asian electronic trading. Light, sweet crude for January delivery was down $1.44 to $47.84 a barrel _ the lowest since 2005 _ in electronic trading on the New York Mercantile Exchange by midafternoon in Singapore.

The problems facing the U.S. manufacturing sector were reflected in similar surveys earlier for the euro-zone and Britain, where shares also fell sharply Monday.

Apart from fears over a prolonged global downturn, Japanese stocks sank on heavy selling of exporters after recent gains in the yen. A stronger yen erodes overseas earnings and makes Japanese products more expensive for consumers abroad. The dollar was little changed at 93.24 yen in late afternoon Tokyo trade.

Japan's top automaker, Toyota Motor Corp., tumbled 4.1 percent, while Honda Motor Corp. dropped 6.9 percent. Sony Corp. Sony Corp. fell 4.6 percent.

In Taiwan, markets were weighed down by a profit warning from Taiwan Semiconductor Manufacturing Co., the world's largest chip contractor. Its shares tumbled 7 percent, while shares of rival United Microelectronics Corp. fell limit down 7 percent.

U.S. stock index futures were up modestly, suggesting Wall Street would bounce back Tuesday. Dow futures were up 41 points, or 0.5 percent, to 8,178, while S&P 500 futures were up 2.3 points, or 0.3 percent, to 818.1.

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Associated Press writers Shino Yuasa in Tokyo and Teresa Cerojano in Manila contributed to this report.