- banking - financial crisis - Lehman Brothers - USA
Global equities tumbled for a second day running Tuesday as anxious investors waited to see if US insurance giant AIG would suffer the same fate as bankrupt US investment bank Lehman Brothers.
European share prices plunged in early trade after markets had crumbled across Asia and on Wall Street overnight. Tokyo closed at the lowest level for more than three years on Tuesday.
London's FTSE 100 fell 1.44 percent to 5,129.20 points, Franfurt's DAX 30 shed 1.53 percent to 5,972.81 points and in Paris the CAC 40 lost 1.29 percent to 4,115.10 in morning deals.
Losses in Europe were less severe than on Monday, when London and Paris had closed down almost four percent.
"The fact Wall Street extended its losses right through the session ... is likely to leave Europe under further pressure as Tuesday's session gets underway," said CMC Markets dealer Matt Buckland.
There was a glimmer of hope, meanwhile, for thousands of workers set to be officially laid off by Lehman, as British bank Barclays said it was in discussions about possibly buying certain assets of the stricken US investment bank.
The Wall Street Journal had reported that a deal for Lehman's broker-dealer business would see at least 10,000 staff at the US group transfer to the third biggest British bank.
The financial market turmoil stemming from the collapse of Wall Street giant Lehman Brothers has meanwhile boosted odds for a cut in interest rates by the Federal Reserve on Tuesday, analysts said.
Global stock markets remained in a freefall on Tuesday amid fears of contagion from Lehman, already believed to be pressuring American International Group, one of the world's biggest insurance firms.
Rating agencies Standard & Poor's, Moody's and Fitch all lowered AIG's credit score, and the Wall Street Journal reported Tuesday that people close to the situation say AIG may be forced into filing for bankruptcy if it cannot secure sufficient fresh funding by Wednesday.
Investors were faced with an array of bad news that went well beyond the fall of Lehman, a 158-year-old institution that had survived the market crash of 1929 that heralded the Great Depression.
"Lurking close to the surface are mounting pressures on institutions and on any number of investors as the dominoes start to tumble," said Patrick Bennett, an analyst at Societe Generale.
Across Asia on Tuesday, officials called emergency meetings as trading screens went red on the heels of the biggest one-day point loss for Wall Street's Dow Jones index since the September 11 terror attacks.
Japanese shares dropped almost five percent to close at a three-year low, while Hong Kong was off 5.9 percent at the lunch break, near a two-year bottom.
Some analysts said there were signs of panic selling, as officials in Australia, Japan and elsewhere pledged to try to keep markets calm.
Japan injected 2.5 trillion yen (24 billion dollars) into the markets after similar moves by other major central banks on Monday.
In South Korea, shares closed 6.1 percent lower while the currency, the won, fell 4.3 percent against the dollar, its biggest daily drop in a decade.
The central bank said it would intervene on the foreign exchange market if necessary.
Officials appealed for calm, trying to avert a panic and urging investors not to over-react to the drop, which comes after months of market turmoil set off by worries over US subprime, or high-risk, housing loans.
US Treasury Secretary Henry Paulson vowed Monday to ensure "stability and orderliness" at home and overseas.
Earlier this month Paulson ordered the US government's takeover of US mortgage giants Freddie Mac and Fannie Mae, and on Monday he reiterated that the US housing mess was "the root" of the current troubles.
New York's blue-chip Dow Jones Industrial Average dropped 4.4 percent on Monday, its largest one-day point loss since the re-opening after the September 11 attacks in 2001.