The selling on Wall Street began at the opening bell on Monday and only intensified as the morning went on. Shares moved sharply lower as the banking crisis tightened its grip on the global economy.
The Dow Jones industrial average fell below 10,000 for the first time since 2004 after losing more than 500 points in the first hour. The index has lost more than 1,100 points � or about 10 percent � in slightly more than a week.
Shortly after noon, the Dow was down 450 points or 4.3 percent.
The broader American stock market was down more than 4.9 percent, as measured by the Standard & Poor�s 500-stock index, its worst decline since last Monday�s 8.8 percent drop. At the same time, oil dropped below $90 a barrel.
The precipitous declines, which accelerated as the morning wore on, came a day after European governments were forced to scramble to save several major banks and lenders from collapse. The moves reinforced the global reach of the current crisis and alarmed depositors and regulators in the United States and abroad.
European stocks fell even further, with the major indexes in London, Paris, and Frankfurt down nearly 7 percent.
The sharp slides came despite a morning announcement from the Federal Reserve, which said it would significantly expand the amount of money it makes available to major banks. The Fed will now lend up to $900 billion in credit, an enormous sum that officials hope will reassure banks that the government will provide them with adequate capital.
The moves were aimed at resolving a problem at the center of the current credit crisis: the reluctance of banks to lend. The healthy functioning of the world�s economy is dependent on the easy flow of short-term loans among banks, businesses and consumers, a stream that has been cut off as banks become more fearful of giving out cash.
Borrowing rates remained very high on Monday despite the passage of the American bailout plan, although proponents of that package argue that its longer-term benefits will take time to carry out. Still, some gauges of anxiety in the market again reached record highs as the week began, and a benchmark overnight borrowing rate, the Libor rate, moved higher. A measure of volatility, the VIX index, jumped to its highest intraday level ever.
�It�s not just a question clearing problem assets,� said Bob McKee, chief economist for Independent Strategy, a research consultancy. �If banks don�t have enough capital they will be paralyzed.�
Oil prices tumbled nearly $4 a barrel to below $90, the first time it has fallen that low since February, before recovering slightly to $90.90 around 10 a.m. The euro continued to fall against the dollar.
Falling oil prices provoked a decline of just over 1,000 points, or nearly 9.9 percent, on the Toronto Stock Market. The drop brought the S&P/TSX index below 10,000 points for the first time since May 2004.
Energy stocks drove the decline, falling 13 percent. Financial industry shares were down 7 percent in mid-morning trading with the Royal Bank of Canada, the country�s largest bank, down 8.43 percent. That drop came despite the fact that the Royal Bank, like most of Canada�s major banks, has relatively little expose to troubled debt in the United States.
Strong prices for oil and gas as well as commodities like metals, have allowed most of Canada to escape the economic downturn in the United States. But the Bank of Nova Scotia report released on Monday said that weakness in the manufacturing sector, which relies heavily on exports to the United States, will push likely Canada into a recession.
In Europe, governments worked over the weekend to prevent the collapse of two lenders, Hypo Real Estate in Germany and the Belgian operations of Fortis. The German government also said it would guarantee all private bank deposits as it sought to avert the spread of the financial contagion.
The FTSE 100 index in London fell 5.6 percent; the Frankfurt DAX was down 5.2 percent and the CAC-40 in Paris lost 5.9 percent.
A similar sell-off occurred in Asia, the Nikkei 225 stock average in Tokyo fell 4.3 percent, while the Kospi index in Seoul fell 4.3 percent. The Standard and Poor�s/ASX 200 index in Sydney fell 3.3 percent, while the Hang Seng index in Hong Kong was down 5 percent.
�People are really disappointed by the inability of Europe to react on a concerted basis,� said Andrew Popper, a fund manager at SG Hambros in London. �It�s still very much a country by country approach. There is also a realization that we haven�t seen any effects on economic growth so far but that now is starting and that�s having an effect on non-financial shares.�
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