Futures plunge on U.S. recession fears

By Kristina Cooke

NEW YORK (Reuters) - U.S. stock index futures sank in holiday-shortened trading on Monday as fear of a U.S. recession gripped investors, indicating Wall Street was likely to join a global equity markets plunge that may usher in a bear market when trading resumes on Tuesday.

While cash equity markets were shut for the Martin Luther King Jr. Day holiday, index futures were very active in electronic trading through the Chicago Mercantile Exchange. U.S. stock markets reopen on Tuesday.

The sell-off in futures tracked losses in global equities, as the MSCI's main index of world stocks hit its lowest level in more than a year. World stocks nose-dived as investors worried a deteriorating U.S. economy would drag other regions down with it.

The pan-European FTSEurofirst 300 .FTEU3> closed down 5.8 percent, and Japan's benchmark Nikkei average .N225> earlier lost 3.86 percent to close at a two-year low.

If U.S. stocks open on Tuesday at the levels futures are currently indicating, it would push major indexes dangerously close to bear market territory -- or a 20 percent drop from their peak in October. That would mark the death of the bull market that began in early October 2002.

The drop in futures follows the worst week for the S&P 500 in five years. On Friday, stocks fell for a fourth day, on worries that a White House effort to boost the economy may not prevent a recession.

President George W. Bush on Friday called for a package worth up to $150 billion in tax cuts and other measures to shore up the economy, but investors said the plan did not go far enough.

"What we are seeing today are more signs that the shock waves from the U.S. are still expanding throughout the world, and we are still in the eye of the storm as far as credit issues are concerned," said Subodh Kumar, chief investment strategist at Subodh Kumar & Associates in Toronto.