Shares and oil fall on fears of US recession

Stocks took a fresh battering as renewed fears that the world's largest economy may be sliding into recession stalked global markets.

Japan's Nikkei 225 fell 1.9 per cent to close at 8,784.46. Yoshikazu Tsuno / AFP

Stocks took a fresh battering yesterday as renewed fears that the world's largest economy may be sliding into recession stalked global markets.

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Brent crude oil prices fell US$1.56 to $110.77 a barrel as investors worried that a weaker global economy would hit crude demand.

The sell-off followed the release of dismal US employment data on Friday, showing no jobs were created last month. Renewed concerns linked to the euro-zone sovereign debt crisis added to the gloom.

The benchmark Stoxx Europe 600 Index was down 3.8 per cent at 224.19 points in afternoon trading in London, while the UK's FTSE was 3.3 per cent lower at 5,116.42, with Frankfurt's Dax down 4.98 per cent at 5,262.01.

Markets in the US were closed for the Labour Day holiday.

In Asia, Japan's Nikkei 225 fell 1.9 per cent to close at 8,784.46, and Hong Kong's Hang Seng slid 3 per cent to 19,616.4.

The rocky outlook prompted Josef Ackermann, the Deutsche Bank chief executive, to liken conditions in the stock and bond market to the financial crisis of three years ago.

"The new normal is characterised by volatility and uncertainty, not only in respect to market developments but also in consideration of the financial branch," he said yesterday in Frankfurt. "All this reminds one of the fall of 2008, even though the European banking sector is significantly better capitalised and less dependent on short-term liquidity."

The latest slide follows a hiatus across global markets since last month fuelled by doubts about the strength of economic growth.

Investors have remained on edge since early last month when Standard & Poor's lowered the US's top-tier credit rating and evidence increased that the euro-zone debt crisis may be worsening.

A raft of recent disappointing economic data in the US, Europe and China has added to the gloom.

European banks suffered badly during yesterday's rout, with shares falling to their lowest in more than two years.

Royal Bank of Scotland and Deutsche Bank were among those hardest hit. Both banks are among lenders affected by a US regulators' probe into the quality of mortgage-backed securities sold by lenders and which played a role in triggering the financial downturn.

Falls within the banking sector were also in response to renewed worries about Europe's ability to resolve the region's debt turmoil.

Hopes of political unity were threatened after the the coalition of the German chancellor, Angela Merkel, lost ground in a state election on Sunday.

Policymakers will be further tested tomorrow by a court ruling on whether Germany's involvement in the euro zone's bailout fund was legal.

The latest euro-zone data released yesterday failed to lift doubts about the region's economy. A survey of business activity showed that economic growth decelerated to a two-year low last month. The euro-zone services purchasing managers' index dropped to 50.7 from 51.1 last month, the data showed.

The world economy was expanding at a near stall speed, analysts at Societe Generale wrote in a note, citing recent data. But the world would avoid a recession as it required a trigger that would remain absent, they said.

"Taming burgeoning public debts on both sides of the Atlantic will take time, and we forecast a prolonged period of low growth for both the US and Europe," they wrote.