Markets in tailspin

By Claudia Parsons

NEW YORK (Reuters) - Wall Street joined a global market rout on Friday that kicked off in Japan, led Russia to suspend trading and sent oil and other commodities tumbling on fears of a deep worldwide recession.

U.S. stock indexes fell around 4 percent.

News of a contraction in Britain's economy deepened fears of a worldwide recession stemming from the worst financial crisis in 80 years. China warned the outlook was grim.

Foreign exchange markets saw extreme volatility with the yen rocketing to multiyear highs against the dollar and euro. The euro/yen rate fell 10 percent at one point.

Britain's economy shrank 0.5 percent in the third quarter, and analysts said euro zone figures showed the 15-nation currency bloc was already in recession.

The pace of existing-home sales in the United States rose sharply in September, but a Reuters poll of economists suggested battered U.S. home prices will decline into next year and a possible recovery in 2010 will be meek at best.

Stock markets were in freefall around the world as panicked investors moved to liquidate risky positions. Japan's Nikkei index ended down 9.6 percent and European shares dropped 6.5 percent.

The Dow, the S&P 500 , and the Nasdaq dropped around 4 percent. The price of U.S. government bonds rose as investors exited stocks.

"I would characterize this as a shell-shocked mentality out there," said Thomas di Galoma, head of government bond trading at Jefferies & Co. in New York. "It's all the deleveraging of equities ... It's causing an issue for everyone."

Russia suspended trading on its stock market until at least Tuesday after the market lost more than a tenth of its value on Friday, hitting its lowest levels since late 2004.

"The global financial crisis has been constantly spreading and worsening, creating a severe shock to global economic growth," Chinese Premier Wen Jiabao told an Asia-Europe Meeting of 27 EU member states and 16 Asian nations.

OPEC, meeting in emergency session, agreed to cut oil output by 1.5 million barrels per day in an attempt to halt the steep slide in the price of oil. But the price of U.S. crude fell 5 percent toward $64 as economic gloom overshadowed the cut.

Commodities from copper to zinc, sugar and coffee were battered by sharp selling -- bad news for emerging market economies that are major commodity producers and depend on exports for much of their revenue.

The recent thaw in global money markets appeared to be coming to a halt on Friday as concerns over a global slowdown rocked financial markets, brought focus back on counterparty risk and raised expectations of sharp interest rate cuts.

The cost of borrowing overnight dollars rose and sterling overnight rates increased.