A trader reacts at his desk at the Frankfurt stock exchange. U.S. futures… (Alex Domanski, Reuters )
A selloff in global stocks gathered pace Friday, reflecting mounting concerns that the U.S. economy is heading into another recession.
Nervous investors fled to the safety of core government bonds, Swiss francs and gold, which hit a record high, with many seeking to unwind holdings of riskier assets such as stocks, commodities and higher-yielding currencies before the weekend.
European shares extended steep losses from Thursday, when they suffered their biggest daily slide in 2 1/2 years, with key indexes in Britain, France and Germany deep in the red.
U.S. stock index futures pointed to a sharply weaker open for equities on Wall Street, a day after the Nasdaq shed more than 5 percent and the S&P 500 tumbled 4.5 percent on rising recession fears.
Futures for the S&P 500, the Dow Jones and the Nasdaq 100 were down by 1.4 to 1.5 percent.
A short selling ban imposed on financial stocks by some European stock markets last week has had little impact. Shares in Europe's biggest banks fell to their lowest in more than two years on funding fears, taking the weekly decline to near 10 percent and leaving the battered sector on course for a fourth straight week of declines.
"There has been a panic about European banks. European governments are guaranteeing European banks, but if the governments are not stable themselves, that means the banks aren't stable," said Lothario Mendel, chief investment officer at Octopus Investments, which manages $4 billion.
Worries about a European banking crisis kept the euro under pressure. It was last down 0.1 percent against the dollar at $1.4310.
The MSCI world equity index was down 1.4 percent. It has matched the losses in European stocks since the start of the month, with $1.4 trillion being wiped off valuations Thursday and early Friday -- equivalent to the size of the Spanish economy.
"At the moment the market is just looking for relative safe havens," said Mitsui Precious Metals analyst David Jollie. "You can see that in the selloffs across equity markets. The strength of gold is the other side of the coin from that."
Exane BNP Paribas, in a note, said a global recession was far from priced in by financial markets. Another global slump could see corporate earnings plunge 35 percent from peak to trough, implying a 50 percent cut to consensus earnings per share estimates.
The sharp decline in stock markets will reduce household wealth, further undermining consumer confidence and demand in coming months. Heightened uncertainty over growth could also see producers delaying decision-making, hitting global output.
Those concerns are likely to see investors cut exposure to stocks, metals and oil, and growth-linked currencies such as the Australian dollar in the coming days, unless the U.S. Federal Reserve signals more quantitative easing or European politicians take decisive actions to stem contagion risk from the euro zone debt crisis.