Recession fears provoke global market plunge

NEW YORK: World leaders wrestled anew on Wednesday with recession fears as stock values cascaded, defying hopes of US and European governments that their escalating interventions into the finance system, mostly recently the purchase of bank shares, would stabilize the markets.
 
A US central bank official, Janet Yellen, president of the San Francisco branch of the Federal Reserve, said that the US economy “appears to be in a recession”, based on data and the consensus among top analysts.
 
US Federal Reserve chief Ben Bernanke warned that the emergency actions of the last month were unlikely to produce a swift economic turnaround, even if markets stabilize.
 
"Broader economic recovery will not happen right away," Bernanke said in a speech to the Economic Club of New York.
 
In Brussels, leaders of the Group of Eight (G8), which combines seven major industrial countries and Russia, called for a global summit to address the financial crisis and draw up reforms to avoid similar crises in the future.
 
British Prime Minister Gordon Brown proposed reforms for international financial markets that would include a global early warning system, globally accepted standards of supervision and regulation, effective cross-border supervision of the world's 30 largest multinationals, and cooperation and concerted action at times of crisis.
 
German Chancellor Angela Merkel warned that Europe's biggest economy was facing tough times, and she stepped up calls for new rules to regulate the battered world financial system.
 
"Germany is strong," she told the German Parliament. "However, Germany will go through a difficult period."
 
Germany's leading economic research institutes warned this week that the country was on the brink of recession.
 
In the day-long, global slide in share prices, Asian markets slipped in the 1 to 3 percent range. European markets fell from 5 to 7 percent.
 
The final, sharpest plunge came in New York, where the blue-chip Dow Jones industrials shed 7.87 percent, the technology-heavy Nasdaq index dropped 8.47 percent and the broad-based Standard & Poor's 500 lost 9.03 percent.
 
In Latin America, trading was halted for the fifth time in two weeks on the Sao Paolo stock exchange, where the Bovespa index lost more than 11 percent. Argentina's Merval index closed more than 12 percent lower, Mexico's IPC index was off nearly 5 percent.
 
Irish President Mary McAleese said she would forego 10 percent of her salary, following Tuesday's call by Irish Finance Minister Brian Lenihan for "patriotic action" by government ministers and top civil servants.
 
Other governments were also tallying revenue losses from their slowing economies. The US government's deficit for the 2008 budget year, which ended last month, hit a record high of $455 billion, soaring to 3.2 percent of gross domestic product (GDP), compared to a deficit of 1.2 percent just 12 months earlier.
 
In Iceland, one of the hardest-hit economies, the central bank lowered key interest rates from 15.5 to 12 percent as it negotiated with Russia for $540-billion loan. Last week, the government in Reykjavik nationalized the country's three largest banks, which have run up liabilities at least five times that of Iceland's gross national product in recent years.
 
An appeal by Iceland for help from the International Monetary Fund (IMF) is expected by next week.
 
In Rome, the head of the UN Food and Agriculture Organization (FAO) warned that the financial crash could deepen a food crisis in poor countries despite record 2008 grain harvests.
 
"The great uncertainty now enveloping international markets and the threat of global recession may tempt countries towards protectionism and towards reassessing their commitments to international development aid," FAO Director-General Jacques Diouf said.
 
In the US, where the crisis came to a head last month, more than a year after the bursting housing market bubble started eroding mortgage-backed securities, President George W Bush said he realized the country was in a grim financial crisis but was confident in the long run that the economy would come back.
 
"I'm realistic about how tough the situation is and optimistic that we're gonna come through it," Bush said.
 
He defended Tuesday's move by the US Treasury to buy $250 billion in bank shares as "necessary" to "help us through this financial crisis."
 
Bush expressed his general opposition to government ownership of stakes in private enterprise, which he did not think was "good for the country." He hoped that in some cases, the government could "make a little money" for taxpayers by selling off the financial assets when markets are more stable.