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Global Markets Plunge on US Economic Recovery Doubts

Trader James Dresch works on the floor of the New York Stock Exchange in New York, Sept. 22, 2011.
Trader James Dresch works on the floor of the New York Stock Exchange in New York, Sept. 22, 2011.

Global stock markets plunged Thursday as investors worried that the U.S. economy, the world's largest, would not turn robust anytime soon and instead help drag the world economy into another recession.

U.S. stock markets plummeted about four percent in late-day trading, with the broad-based S&P index of 500 companies retreating to its lowest point of the year. The sharp stock sell-off began in Asian markets, quickly spreading to bigger losses on key European exchanges in London, Paris and Frankfurt, where investors also feared a possible Greek debt default.

The closely watched Dow Jones Industrial Average of 30 key stocks on Wall Street lost more than half of the amount it has dropped for all of 2011 in just five-and-a-half hours of trading Thursday, a nearly a 500-point drop from Wednesday's close.

Prices for commodities also dropped, with oil sliding nearly 5 percent, dipping below $80 a barrel for the first time in a month on worries there would be less demand with a global economic downturn. Even the price of gold, often viewed as a safe haven for investors, skidded, but U.S. bonds were still viewed favorably as a protected investment.

The managing director of the International Monetary Fund, Christine Lagarde, said the world's biggest economies need to strengthen their collective efforts to restore stability to world financial markets. She said that global leaders have not exhibited the same sense of momentum and spirit they did to resolve economic difficulties as they did at the height of the recent recession.

Lagarde said the risk against global economic growth has "increased markedly," but added that so far world financial markets have ignored "bold" corrective efforts taken by European countries to cut their government debt.

The global stock sell-off began after the U.S. central bank, the Federal Reserve, said Wednesday it sees "significant downside risks" in the outlook for the American economy.

The Fed said a complete economic recovery is years away, and announced a plan to sell $400 billion of short-term bonds and buy long-term Treasury notes in an effort to keep interest rates low and boost economic growth. The central bank's action had been expected.

Analysts said that the gloomy forecast for the U.S. economy, coupled with worries that Greece may eventually default on its international bailout loans, could lead to a new global downturn or at best continued sluggish growth.

Some information for this report was provided by AP, AFP, Reuters and Bloomberg.