Stocks Tank as Markets Enter Bear Market Territory

Aug. 9: A currency trader works in front of a TV showing U.S. President Barack Obama at the Korea Exchange Bank headquarters in Seoul, South Korea. (AP)

LONDON – Stocks tanked again Tuesday as many global markets entered official bear market territory after one of the worst days on Wall Street since the collapse of Lehman Brothers in 2008.

Asian markets briefly recouped many earlier losses and European stocks opened higher. That rally proved short-lived, as investors worried about the consequences of the U.S. credit downgrade, Europe's debt crisis and mounting expectations of a global recession.

Many investors are looking for relatively safer assets to park their cash and the price of gold and the Swiss franc continued to rise to record levels.

"Many global equity markets have now entered bear market territory having fallen by over 20 percent from their recent peaks," said Lee Hardman, an analyst at The Bank of Tokyo-Mitsubishi UFJ.

By mid-morning, Germany's DAX was down 5.2 percent at 5,617 while the CAC-40 in France was 3.4 percent lower at 3,020. The FTSE 100 index of leading British shares was down 3.6 percent at 4,887.

U.S. stocks were also poised for further falls at the open, a day after the Dow Jones industrial average fell a dizzying 634 points. Dow futures were down another 0.9 percent at 10,625 while the broader Standard & Poor's 500 futures fell the same rate to 1,099.

All eyes will be on the U.S. Federal Reserve later when it holds its regular monetary policy meeting and in particular whether the central bank announces measures to stabilize markets and get the U.S. economy going again.

"The odds now favour some form of further policy easing at tonight's meeting," said Kit Juckes, an analyst at Societe Generale.

Worries about the U.S. economic recovery have been building since the government said that economic growth was far weaker in the first half of 2011 than economists expected. Intensifying concerns were reports showing that the manufacturing and services industries barely grew in July, although job growth was better than economists expected last month.

Investors are also worried that Italy and Spain could become the next European countries to have trouble repaying their debts. Greece, Ireland and Portugal have already received bailout loans because of Europe's 21-month-old debt crisis.

The fears have pushed investors to shun Spanish and Italian bonds, which have led to higher yields and in even higher borrowing costs for the two countries.

The European Central Bank stepped in Monday and bought billions of euros worth of their bonds. The move helped to lower yields on Spanish and Italian bonds. They have fallen a tad more Tuesday. The yield on Spain's ten-year bonds has dropped 0.19 percentage point to 4,96 percent while the Italian equivalent declined 0.17 percentage point to 5.06 percent.

In the oil markets, worries over the state of the global economy continued to weigh on prices. The main benchmark rate was down $3 at $78.31 a barrel. Earlier it had fallen to $75.71, its lowest since September 2010.

Stock markets in the traditionally oil-dependent Middle East were also nosediving Tuesday, including the benchmark index in OPEC powerhouse Saudi Arabia, the region's largest economy, dropped 3.6 percent to 5,837 points by midday.

Egypt, which is far less oil-dependent than Saudi Arabia, was also among the region's biggest decliners, with the EGX30 index plunging 4.5 percent to 4,488 points. The exchange temporarily halted trading late in the morning once broader indicators fell by more than 5 percent.

The broad declines around the world followed big falls in Asia earlier.

The retreat was led by Hong Kong's Hang Seng, which tumbled 5.7 percent to 19,330.70. Other markets fell too, including Japan's Nikkei 225 stock average, which ended 1.7 percent lower at 8,944.48, having earlier traded 4 percent down. China's main market in Shanghai fared moderately better, closing less than a point lower only at 2,645.70