Stock markets worldwide on Monday suffered one of their worst routs since the 2001 terrorist attacks on growing fears that U.S. economic woes could turn global boom times to bust.
Foreign markets, most of which had been sliding in recent weeks along with U.S. shares, faced a barrage of selling that left many of them down more than 5% for the day, and some down as much as 8%.
The German market dived 7.2% -- the equivalent of the U.S. Dow Jones industrial average plummeting 871 points. Stocks sank 5.5% in Hong Kong, 7.4% in India and 6.6% in Brazil.
Early today in Asia, the selling wave continued, setting a worrisome tone for a beleaguered Wall Street when U.S. markets reopen after being closed Monday in observance of Martin Luther King Day.
The pain overseas will be felt keenly by American individual investors, who have funneled large sums into foreign shares in this decade as those markets have rocketed. Mutual funds that buy foreign stocks have been among the most popular investments in many 401(k) retirement savings plans.
The heavy losses in world markets could increase pressure on the Federal Reserve and other central banks to cut short-term interest rates further. Rumors of emergency rate cuts swept the financial world early today.
Most foreign stock markets have tumbled since the start of the year as the outlook for the U.S. economy has gone from bad to worse amid the housing crisis and rising losses on mortgages and other consumer loans at major banks.
"The U.S.' problems are stretching out globally," said Alan Ruskin, chief international strategist at investment firm RBS Greenwich Capital in Greenwich, Conn. "Clearly these markets are very vulnerable, plainly nervous -- and uncertainty rules."
The main concern is that, despite the spectacular growth of many up-and-coming economies such as China, India and Brazil, the world couldn't easily withstand a severe downturn in the U.S., which consumed $2.1 trillion of foreign goods and services in the first 11 months of 2007.
"If the States really goes into a serious recession, it will have knock-on effects for all other major economies," said Ruth Lea, economic advisor to Arbuthnot Banking Group in London, where the main British stock index plunged 5.5% on Monday.
Foreign investors apparently took little comfort in President Bush's call Friday for about $150 billion in tax rebates and other measures to give the domestic economy a boost. Some forecasters, including brokerages Goldman, Sachs & Co. and Morgan Stanley, have said a U.S. recession is probably unavoidable.
