January 22, 2008 / 1:11 AM / in 12 years

Global stocks fall as U.S. recession fears grip

LONDON (Reuters) - Shares from Sydney to London sank for a second day on Tuesday, dragging commodity prices with them and promising a woeful start for Wall Street as investors dumped assets exposed to the risk of a global economic slowdown.

A man stands in front of a panel displaying the Hang Seng Index in Hong Kong, January 22, 2008. REUTERS/Victor Fraile

European stocks, while off early lows, were down more than 1 percent after Japan’s benchmark Nikkei lost 5.7 percent — the worst one-day loss since the session after the September 11, 2001 attacks on the United States — while MSCI’s measure for other Asian stocks tumbled more than 7 percent.

“We’re in the midst of very bearish sentiment. There’s a lot of fear in this street and worldwide,” said Tom Hougaard, chief market strategist at City Index Markets.

“Everyone is so keen to get rid of their stocks now, which of course is a good buying opportunity.”

MSCI’s main world stock index slid 1.8 percent, plumbing depths last seen in October 2006.

Shanghai copper and zinc futures fell by their 4 percent daily limit as fears that the risk of a U.S. recession could eat into global growth killed the appetite for raw materials. London’s Brent crude oil contract slid more than $1 to $85.86 a barrel.

Comments from IMF Managing Director Dominique Strauss-Kahn on Monday that all developed countries were suffering from the U.S. slowdown entrenched fears that global growth was hitting a wall.

Adding to the gloom, billionaire investor George Soros said the world was facing the worst financial crisis since World War Two and the United States was threatened with recession.

All eyes are on earnings from Bank of America (BAC.N) later, anxious to see if there are further writedowns related to exposure to risky mortgages.

U.S. stock index futures fell around 5 percent, signaling a sharp sell-off on Wall Street later. U.S. markets were closed on Monday for a public holiday.


But demand for safe-haven bonds soared, pushing the benchmark U.S. 10-year yield to a 4-1/2 year low below 3.5 percent. The 10-year Bund yield slid to 3.8 percent, levels last seen in December 2006.

The yen also benefited in this risk-averse environment, hitting a 2-1/2 year high against the dollar and five-month peaks versus the euro before reversing direction.

“There is a panicky environment in the equity market ... This is leading to risk aversion increasing and the carry trade is now a thing of the past meaning there is continued strength in the yen,” said Audrey Childe-Freeman, European economist at CIBC.

In a carry trade, investors sell low-yielding currencies such as the yen to fund purchases of better-yielding but riskier assets.

Editing by Stephen Nisbet

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