TOKYO – Global stock markets extended their shakeout into a second day Tuesday, plunging amid worries that a possible U.S. recession will cause a worldwide economic slowdown.
The dramatic declines in Asia and Europe were expected to spread to Wall Street, where stock index futures were already down sharply hours before the trading day began.
Japan's Nikkei 225 index, the benchmark for Asia's biggest bourse, was down 5.1 percent in afternoon trading after dropping 3.9 percent Monday.
Trading was halted in India when the Sensex index plummeted 9.75 percent within minutes of opening. Hong Kong's Hang Seng index dropped 8 percent by midday after diving 5.5 percent the day before.
"Unless we get some positive 'shock effects,' such as drastic measures from the U.S. government, there is almost no hope for a recovery in stocks," said Koji Takeuchi, senior economist at Mizuho Research Institute in Tokyo.
Asian markets have fallen sharply since the start of the year: Japan's benchmark index has sunk nearly 17 percent, while the Hang Seng is down a stunning 22 percent.
Oil and gold prices also fell. Light, sweet crude for February delivery fell to $88.35 a barrel amid speculation that slower U.S. growth will weaken demand. Spot gold, which usually benefits from market uncertainty, fell to a 2-week low of $860.90 per troy ounce.
U.S. markets were closed Monday for a holiday commemorating civil rights leader Martin Luther King Jr. But Wall Street future prices were down sharply, portending a plunge when trading begins at 9:30 a.m. Eastern time.
Dow Jones industrial average futures were down 486 points, or 4.1 percent, to 11,613, while Standard & Poor's 500 futures were down 62.7 points, or 4.7 percent, at 1,262.
Markets have been plunging amid pessimism about the ability of the U.S. government to prevent a recession. The Federal Reserve has indicated it will lower interest rates further, and President Bush has proposed an economic stimulus package that includes $145 billion in tax cuts, but investors around the world are doubtful that the measures will lift the economy quickly.
The American economy has been battered by a slump in the housing market and a credit crisis that has led to billions of dollars of losses among major U.S. banks.
There are already signs this is extending to less spending by American consumers, and that means less demand for Asian and European exports.
"You can see investors have lost confidence in the U.S. government's ability to handle the subprime situation," said Castor Pang, a strategist at Sun Hung Kai Financial in Hong Kong. "The policy to stimulate the economy has not measured up."
In Europe Monday, investors also dumped stocks, sending the Britain's benchmark FTSE-100 down 5.5 percent and France's CAC-40 Index sliding 6.8 percent. Germany's blue-chip DAX 30 plunged 7.2 percent to 6,790.19.
That slide continued Tuesday, with benchmark indices in China, South Korea and Singapore falling at least 4 percent. Australia's benchmark index slid 7.1 percent and Indonesia's market was down 9 percent.
Takeuchi said investors feel that the selloff is spreading worldwide, setting off fears of a global downturn. Risks of economic contraction have been growing in Japan as both exports and consumer spending are weakening, he said.
Kirby Daley, strategist at Newedge Group, said Japan's Nikkei index could shed another 10 percent to 15 percent in the next few months. Japanese companies depend on exports and capital investments to keep up profits, and both are endangered if there is a U.S. slowdown, he said.
"The argument that valuations are cheap for Japanese stocks is flawed," Daley said. "The basis for those earnings valuations doesn't consider ongoing problems in the U.S. economy, which are likely to get worse."
Even usually upbeat Japanese Economy Minister Hiroko Ota acknowledged that downsides risks are growing, given the volatile markets and surging oil prices.
"The economy keeps recovering as recent production data show, but downside risks are growing these days," Ota told reporters.