Emergency measures to tackle the financial crisis provided little relief for nervous investors Thursday, as stock markets around the world took a battering on fears of a global recession ahead.
With most analysts now considering a US recession inevitable, markets looked beyond the current wave of bank rescue packages and towards the possibility of a sustained period of lower demand.
Facing an economic downturn and the worst financial crisis since the Great Depression, leaders from the European Union were due to wrap up a summit with a call to overhaul the global financial system.
Following intense discussions on the first day of the two-day summit, European Commission President Jose Manuel Barroso said it was "essential" for the EU, the United States and other countries to work hand-in-hand.
"Europe is indispensable for a global response but a European response alone is not enough," Barroso said.
French President Nicolas Sarkozy said there was unanimous support for a global summit to be held before the end of the year, including emerging powers such as China and India.
"Europe will present an ambitious common vision," Sarkozy said. "We are really determined to go all the way on this overhaul."
Governments around the world have been scrambling to shore up public confidence in the global financial system, nationalising banks, guaranteeing deposits and putting together massive bank bailout packages.
European Union nations have already committed more than 1.8 trillion euros (2.4 billion dollars) to fighting the crisis by buying bank shares and providing loan guarantees to keep credit markets moving.
The United States has a 700 billion dollar rescue plan, and the Bush administration announced Tuesday that 250 billion dollars from that would be used to take stakes in nine major banks.
The crisis has its roots in a credit crunch set off by bad mortgage-related debt in the , much of which was repackaged and resold to banks and investors around the world.
Despite efforts to fix the crisis, dismal US retail sales figures out Wednesday renewed market panic and stoked fears that the credit crunch would help push some of the world's biggest economies into painful recessions.
Tokyo's stock index dropped nearly 10 percent, wiping out most of Tuesday's record rally.
Japan's central bank also pumped 600 billion yen (6.0 billion dollars) of emergency funds into the short-term money market.
Stocks lost about six percent in Seoul, Singapore and Sydney. Shanghai dropped almost four percent at the opening.
"Don't stand in front of the freight train," said Sonray Capital Markets chief economist Clifford Bennett. "This is clearly a panic with further to go. The equity market game has fundamentally changed."
The market has "picked up on the fear factor," said ABN Amro Morgans private client adviser Bill Bishop. "There is nowhere to hide."
The Dow sank 7.87 percent Wednesday on the lower-than-expected US retail sales figures and Federal Reserve chairman Ben Bernanke said a recovery from the financial crisis would not happen right away.
London's FTSE 100 index of leading shares shed 7.16 percent, while in Paris the CAC 40 fell 6.82 percent and the Frankfurt DAX gave up 6.49 percent.
Carl Weinberg, chief economist at High Frequency Economics, said that even if credit flows were restored, turmoil in the was far from over.
"The world economy is still headed into a recession despite the global financial market rescue effort," Weinberg said.
"The decline will be deep and protracted. It has already started. Nowhere is the economic house in greater disorder than Euroland, although some may argue that Japan is a bigger mess."
On Tuesday, San Francisco Federal Reserve president Janet Yellen became the first central bank official to publicly acknowledge that the world's biggest economy was likely headed into a recession.
Yellen said she expected essentially no growth at all in the third quarter and "an outright contraction" in the fourth quarter.
"The US economy appears to be in a recession," she said.
The leaders of the Group of Eight major economies meanwhile pledged in a joint statement to hold a global financial crisis summit "in the near future."
Leaders of the G8, which groups Britain, Canada, France, Germany, Italy, Japan, Russia and the United States, "are united in our commitment to fulfill our shared responsibility to resolve the current crisis," they said.
Copyright 2008  AFP Global Edition
