LONDON (Reuters) - Stock markets around the world fell sharply again on Wednesday as concerns about economic recession and falling commodity prices were fueled further by a fresh spate of gloomy corporate earnings.
Emerging markets were hardest hit by the global investor retreat and commodity pressure, with the U.S. dollar boosted by a repatriation of U.S. money and unwinding of dollar-financed trades, and major government bonds lifted by a flight to safety.
MSCI's main index of emerging equities fell some 4.8 percent to its lowest level since June 2005, sharply underperforming the 3.1 percent loss in MSCI's index of world stock markets.
Asian markets kicked off the day's slide and the rout continued into emerging European markets, where currencies such as the Hungarian forint, Turkish lira and South African rand fell heavily and needed official support.
Six countries in the European region -- Hungary, Turkey, Ukraine, Iceland, Serbia and Belarus -- are now either in talks with the International Monetary Fund or have requested IMF help.
Developed markets were not immune. Pan-European stock indices lost more than 4 percent and Britain's pound shed more than two percent on the dollar to 5-year lows.
S&P 500 futures were down more than three percent, indicating an similarly negative start later on Wall St.
"The name of the game at the moment is the economy. It seems as though potentially the worse of the global banking crisis has been averted. All eyes are very much now focused on the slowdown in the economic growth," said Richard Hunter, head of UK equities at Hargreaves Lansdown.
There was widespread concern about highly-leveraged hedge funds liquidating investments for cash in order to meet fourth-quarter redemptions from nervous investors.
"The combination of disappointing earnings, plus bleak guidance, plus the pressure from hedge funds will effectively lead to the last sell-out in the fourth quarter of this year," said FrankfurtFinanz analyst Heino Ruland.
GLOBAL ECONOMIC SHOCK
The emerging markets chill has been triggered in part by the realization that no area will be immune from the global economic slowdown but also concerns about capital flight from countries where governments have not bolstered shaky banks and guaranteed their lending - as most European and U.S. authorities have done.
Global miner BHP Billiton warned early on Wednesday that Chinese demand was set to weaken, echoing concerns last week from rival and takeover target Rio Tinto.
China said on Monday its annual economic growth fell to 9 percent in the third quarter from 10.1 percent previously and that factory output in September was at a six-year low.
"There is an increase in risk aversion. The emerging market world appears to be starting to collapse; that means it'll be much more difficult for the global economy to recover," said Peter Mueller, rates strategist at Commerzbank in Frankfurt.
Commodity price losses mounted everywhere. U.S. crude oil futures fell under $70 per barrel again and London copper futures were down more than 4 percent to their weakest since December 2005.
The commodity slide and emerging markets retreat all helped boost the U.S. dollar to two year highs, while gold prices fell to their lowest in over a month.
"There is big deleveraging from hedge funds triggering a lot of sales in all asset classes, the vulnerable currencies especially are getting hit," said one emerging markets trader from a European bank. "It's a panic situation."
MAJOR MARKETS SUFFER TOO
Even though interbank lending rates in Europe continued to ease from the extreme peaks of early October, European shares followed Asian and Wall St stocks lower.
At 1150 GMT, the FTSEurofirst 300 index of top European shares was down 4.3 percent at 883.95 points, led by banks, basic resources and energy stocks.
The FTSEurofirst 300 has lost nearly 40 percent so far this year, punctured by a credit crisis that has piled up the losses at banks and slowed the economy. Vedanta Resources dropped 10 percent, BHP Billiton fell 8.5 percent and Kazahkmys was down 10 percent.
Losses in Asian shares accelerated in late trading there, with Japan ending down 6.8 percent, and South Korea slumping 5.1 percent. Shanghai's main bourse was down 3.2 percent.
The MSCI index of Asia-Pacific stocks outside Japan declined 5.1 percent, at one point touching its lowest since December 2004.
Recent bellwether earnings from the United States have set the tone. Tech bellwether Texas Instruments Inc warned of slowing sales for its widely used analog chips, while chemical company DuPont Co cut its full-year forecast. Caterpillar Inc, a maker of excavators and bulldozers, also missed profit expectations.
The higher dollar made most gains on the British pound, which lost nearly three percent to a five-year low of $1.6203 in Asian trade after Bank of England chief Mervyn King warned the UK was entering recession.
Britain will be the first of the Group of Seven top economies to release third-quarter gross domestic product data and the figures on Friday are expected to show its economy contracted in that period.
The cost of protection against defaults in Asian and Europe debt spiked to records after Argentina on Tuesday said it would take over its $30 billion private pension system in order to guarantee payments to retirees.
By 1155 GMT, the Markit iTraxx Crossover index, made up of 50 mostly "junk"-rated credits, was at 785 basis points, according to data from Markit, more than 10 basis points wider versus late on Tuesday and after hitting a record high of 795 basis points earlier.