NEW YORK (Reuters) - Stock markets tumbled around the world on Friday as investors fearing a long and deep worldwide recession dumped risky assets far and wide, sending currencies into a tailspin and oil down sharply.
U.S. stocks slumped more than 3 percent, European shares plummeted to their lowest close in five and a half years, and the Japanese market lost nearly 10 percent of its value. Rates on major currencies gyrated wildly amid the frenzied stocks rout.
The yen soared to multiyear highs versus the dollar and euro on risk aversion, and sterling suffered its biggest one-day drop against the dollar since September 1992 on signs that the British and euro zone economies were on the ropes.
“This has become much more global than it was two weeks ago. No one or no market is immune,” said Robert Macintosh, chief economist at Eaton Vance Corp in Boston.
“People are running to safety,” he said. “It is interesting how the dollar has been bashed for years and that is the currency that everybody wants to own.”
Data showed Britain’s economy contracted in the third quarter for the first time in 16 years while the euro zone’s private sector economy shrunk this month at its fastest pace since the monetary union.
Oil tumbled as far as $62.65 a barrel on expectations the economic downturn would sap fuel demand, taking the steam out of an OPEC agreement to cut output. Gold snapped a three-day losing streak as safe-haven buying emerged also fell, while U.S. government bonds benefited for much of the day as the market’s traditional safe haven.
Energy companies also tumbled, dragged down by the more than $3 drop in the price of oil.
Bellwether IBM Inc was a drag on the Dow, but trimmed losses to close 2.7 percent lower after a fall of about 5 percent earlier.
The Dow Jones industrial average was down 312.62 points, or 3.60 percent, at 8,378.63. The Standard & Poor’s 500 Index was down 31.50 points, or 3.47 percent, at 876.61. The Nasdaq Composite Index was down 51.88 points, or 3.23 percent, at 1,552.03.
Still, the U.S. losses did not quite live up to investors’ worst fears at the start of the day.
Before the market opened, stock futures fell so steeply they had to be frozen after triggering a limit down. Losses at the open were not as severe, however, and by midday, stocks had come off their lows before turning lower once again.
News that existing-home sales in the United States rose 5.5 percent last month — the biggest gain since July 2003 — helped put a floor under sentiment since the housing market has been at the center of the economic troubles.
The recent turmoil, however, has lowered the bar for a “good day” on Wall Street.
“Amazingly enough, we’re not down more than this,” said David Henderson, NYSE floor member and president of Raven Securities Corp, on the exchange floor.
“The market is showing some signs that there are value buyers out there.”
World stocks, measured by MSCI’s all-country world index, were down 4.22 percent but had trimmed their losses after hitting five-year lows during the session. Investors dumped emerging market stocks with particular vigor, pushing them down 7.83 percent.
European shares had their lowest close since mid-2003, with the FTSEurofirst 300 index of top European shares closing down 4.93 percent at 829.73 points.
“I sense we’ve moved beyond the credit crisis. There’s a recognition of the damage inflicted on the global economy, that is the recession, by the credit crisis,” said Mike Lenhoff, strategist at Brewin Dolphin.
“It’s not just limited to the developed world. You can run but you can’t hide anywhere.”
Losses in Europe were led by banks, with HSBC slumping 13.5 percent on growing fears of a slowdown in emerging markets.
Japan’s Nikkei tumbled 9.6 percent by the close of trading in Tokyo.
Japan’s huge external surpluses and already rock-bottom interest rates led the yen to outperform, with the dollar/yen exchange rate losing about 7 percent at one point to a 13-year low of 90.90 yen.
The disorderly nature of the moves fueled speculation about Group of Seven central bank intervention to stabilize markets.
“The scale of the recent currency moves will most likely rekindle intervention talks,” said Audrey Childe-Freeman, currency strategist at Brown Brothers Harriman in London. “The question here is: have recent moves been excessive? The answer is yes.”
However, the dollar, the victim in markets in recent years, continued to benefit against other currencies from investors repatriating savings back to the U.S, hitting a two-year high against a basket of major trading-partner currencies.
The U.S. Dollar Index was last up 1.95 percent at 86.425 from a previous session close of 84.775.
The euro was down 2.86 percent at $1.2609 from a previous session close of $1.2980. Against the Japanese yen, the dollar was down 3.19 percent at 94.71 from a previous session close of 97.830.
“The market is afraid. There are massive, massive redemptions and liquidations going on. As asset values move lower, more margin calls occur and more assets need to be liquidated for cash,” said Greg Salvaggio, vice president of trading at Tempus Consulting in Washington.
Government bonds initially were beneficiaries of the stocks sell-off, as is often the case, but turned mixed by the end of New York trade.
The benchmark 10-year U.S. Treasury note was down 6/32, with the yield at 3.7064 percent. The 2-year U.S. Treasury note was up 3/32, with the yield at 1.5492 percent. Euro zone government bond futures rallied.
Additional Reporting by Chris Reese; Editing by Leslie Adler