Market panic as world stocks slump

LONDON, England (CNN) -- Panic accompanied the opening of European markets on Tuesday after Asian markets suffered a second day of heavy losses brought on by concerns over weaknesses in the U.S. economy.

European shares, which also slumped on Monday, followed Asian declines with London's FTSE 100 down 1.06 percent, Paris' CAC 40 down 1.56 percent and Frankfurt's DAX 30 down 3.14 percent.

Traders are now waiting nervously to see how Wall Street reacts when it reopens Tuesday after the Martin Luther King public holiday.

"The panic continues," said CNN's Financial Editor Todd Benjamin. "Markets are down sharply in Europe, following another rout in Asia. No market has escaped the bloodbath, and the fear is palpable." Read Todd's blog on market panic

Japan's Nikkei 225 index slid 5.65 percent Tuesday to close at 12,573.05 on the Tokyo Stock Exchange. Australia's benchmark S&P/ASX200 index closed down 7.1 percent at 5,186.8 -- the biggest one-day loss for almost 20 years. Watch CNN experts debate the prospects for a recession »

China's benchmark Shanghai Composite Index closed down 7.2 percent at 4,559.75. India's Sensex index plunged 10 percent after resuming trade when an automatic shutdown was triggered by an 9.75 percent slump at the opening. Shares on the Sensex had fallen nearly 11 percent -- a four-month low -- on Monday.

In South Korea -- where the market also closed temporarily -- shares fell sharply before the Korea Composite Stock Price Index recovered slightly to finish the session down 4.4 percent at 1609.02, having slid as much as 6.3 percent during the day.

Indonesia's market, meanwhile, was down 10 percent and Hong Kong's Hang Seng index dropped 2,061.23 points, or 8.7 percent, to 21,757.63.

The Singapore stock exchange was down 4.5 percent, and Taiwan's benchmark Taiex was down 6.6 per cent during trading. "People here are just panicked," reported Eunice Yoon, the Asia business editor for CNN.

Traders said steps announced last week by President Bush to kick-start the U.S. economy are too little too late. They got no direction from New York, because U.S. markets were closed.

Analyst Howard Wheeldon of BGC Partners said in comments made Monday that it was expected that the U.S. would open down. "That is a big kick in the teeth for President George W. Bush," he added.

Markets also plunged across South America Monday, where the United States is the largest trading partner for many economies. Brazil's Bovespa exchange, the continent's largest, closed down 6.6 percent, Argentina's Merval dropped 6.3 percent, Colombia's IGBC was down 7.7 percent and Peru's General Index was off 8.4 percent.

In North America, the Toronto stock exchange fell 4.75 percent, while Mexico City closed down 5.35 percent.

"I think a lot of people had been hoping that when the new year started that we would find that the U.S. housing market's problems were largely isolated to that market," said Royal Bank of Scotland's Kit Jukes Monday. "Every piece of news we've had since Christmas has argued against that position."

If the United States slips into recession, Americans may buy fewer goods, especially those from overseas. That's why shares from Toyota in Tokyo to BMW in Frankfurt were down heavily.

Banks also fell hard as the lending policy during the boom time continues to concern analysts. Banks and insurance companies also own a lot of equities.

Commodity-led shares, like oil firms and mining companies, were also hit hard, after flying high for most of 2007. If the world economy falters consumers are likely to less oil and buy fewer products like gold and copper.

By only the 14th trading day of 2008, shares in Europe's main markets are now down between 12 to 15 percent on the year.

During the market gyrations of 2007, sharp falls were often followed by sharp rises. There is no evidence of that yet in 2008. E-mail to a friend

CNN's Espanol's Gabriela Frias contributed to this report.

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