Stocks bomb as dire warnings shake markets. Stock prices suffered steep losses Friday as dire recession forecasts drove the global financial system into one of its most sickening downward lurches since the credit crisis began.

Story Highlights
NEW: Dow Jones loses more than 300 points
CAC-40 in Paris, Frankfurt’s DAX, FTSE 100 in London suffer heavy falls
South Korea’s KOSPI dives 10.6 percent, Nikkei loses 9.6 percent
Economic turmoil will be focus of two-day summit in Beijing, EU leader says

Markets are enduring one of their most painful days since the financial crisis began.

 According to early tallies, the Dow Jones industrial average fell 312 points, or 3.6 percent.

The Dow slumped as much as 504 points in the morning but came back to within 112 points of breakeven in the final hours before falling back.

The Standard & Poor’s 500 index fell 3.5 percent and the Nasdaq composite slid 3.2 percent. All three indexes closed at five-year lows.

“The selling today is the result of the broad weakness overseas,” said Michael Sheldon, chief market strategist at RDM Financial Group.

European and Asian markets also took a battering.

In Britain, where the government said Friday its economy had shrunk to the brink of recession in the third quarter of 2008 — news that sent the pound plunging against the dollar — the FTSE 100 dropped by 9 percent at one point. See how the markets are falling

The FTSE recouped some of its losses to end the day down 5.0 percent. Frankfurt’s DAX, earlier charting losses of 10 percent, rallied to also finish 5.0 percent lower while the Paris CAC index was 3.5 percent down.

With market convulsions toppling the price of oil from recent record highs, an emergency meeting of OPEC nations decided to slash output by nearly 5 percent in an effort to prevent a market collapse. But despite the cut, oil prices continued to fall.

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It was also announced Friday that Iceland is nearing a deal to borrow up to $2.1 billion from the International Monetary Fund to prop up its economy, the IMF and Icelandic Prime Minister Geir Haarde’s office said.

Iceland’s stock market crashed earlier this month and the government nationalized of three of the country’s biggest banks. Trading on the country’s stock market was suspended for nearly a week.

Looming recession fears were exacerbated Thursday by Alan Greenspan, the former head of the U.S. Federal Reserve, who warned of a “credit tsunami” and confessed he was baffled as to how the financial system has broken down.

In Moscow, trading was halted in both main exchanges at one point as concerns that falling oil prices would hurt the economy triggered sharp falls. AFP news agency reported both markets would be closed until Tuesday.

Asian markets also endured a painful session with South Korea’s KOSPI Composite Index closing down 10.6 percent and Japan’s Nikkei Exchange dropping 9.6 percent to a 5-year low on news Sony had halved its profit forecast.

Mumbai’s Sensex index closed near a three-year low having fallen 10.96 percent.

Oil producing cartel OPEC announced at an emergency meeting Friday it was cutting output by 1.5 million barrels to try to halt a collapse of in prices that has seen crude value drop by more than half.

The reduction failed to have an immediate impact, with crude trading down to around $62 a barrel — compared to the record $147.27 it reached in July.

The economic turmoil will be the focus of the two-day, 43-nation Asia-Europe Meeting, which opens Friday in Beijing, according to European Union President Jose Manuel Barroso. Watch how European and Asian leaders hope to tackle the crisis

Leaders hope this week’s summit in China will help bring agreement on a response to the crisis ahead of a November 15 meeting hosted by U.S. President George W. Bush in Washington.

“We need a coordinated global response to reform the global financial system. We are living in unprecedented times and we need unprecedented levels of global coordination,” The Associated Press reported Barroso as saying.

“It’s very simple. We swim together or we sink together.” Barroso outlined no specific proposals but said a solution needed to be based on transparency, responsibility, cross-border supervision and global governance. He also said the world’s financial system needed “major reform.”
Greenspan, who chaired the U.S. Federal Reserve from 1987 through 2006, said Thursday that whatever regulatory changes were made to respond to the crisis, “they will pale in comparison to the change already evident in today’s markets.”Do we really need to rebuild, asks Charles Hodson

Greenspan, who some analysts say did not do enough to control financial institutions during his two-decade tenure, made his comments in prepared testimony to the House of Representatives Oversight and Reform Committee.

Stock prices suffers steep losses as dire recession forecasts shake markets. Stock prices suffered steep losses Friday as dire recession forecasts drove the global financial system into one of its most sickening downward lurches since the credit crisis began. Editing by Tom Christley

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World economic summit planned for Nov. 15, Leaders to discuss how to solve crisis. News from WASHINGTON — World leaders, facing financial markets in turmoil and the possibility of a global recession, plan to discuss ways to fix the crisis at a summit in Washington next month.

U.S. and European leaders, sparring over the causes of the credit crunch and how to cure it, don’t expect to reach consensus on what steps to take. Instead, the Nov. 15 summit may produce only an agreement to hold additional meetings.

“Everybody will come with their own ideas,” White House spokeswoman Dana Perino said. “Not everybody will have the same solution.”

President George W. Bush, responding to calls from French President Nicolas Sarkozy and British Prime Minister Gordon Brown, invited leaders from the so-called Group of 20 industrialized and developing nations to attend the summit almost two weeks after the U.S. presidential election.

The summit is to bring together leaders of Japan, Britain, France, Germany, Italy, Canada, the United States, China, Brazil, India, Russia, South Korea and other major economies.

Perino said the White House would seek input from the winner of the U.S. presidential election, who will take office Jan. 20.

The collapse of the housing market in the United States led to the tanking of the broader financial system, prompting a credit freeze in this country and around the globe.

So far, though, a string of drastic actions by the Federal Reserve and the Bush administration has yet to turn around the economy.

Businesses are reluctant to hire and boost capital investments, consumers have hunkered down, and all the economy’s problems are feeding off each other.

World economic summit planned for Nov. 15, Leaders to discuss how to solve crisis. News from WASHINGTON — World leaders, facing financial markets in turmoil and the possibility of a global recession, plan to discuss ways to fix the crisis at a summit in Washington next month.

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Economic Indicators in U.S. Surprisingly Rise as Federal Reserve unfreezes credit markets. News on Oct. 20 - The index of U.S. leading economic indicators unexpectedly rose in September, led by a surge in the money supply as the Federal Reserve pumped cash into the economy to unfreeze clogged credit markets.

The Conference Board’s gauge increased 0.3 percent after a 0.9 percent decline the prior month that was almost twice as large as previously estimated, the New York-based private research group said today. The index points to the direction of the economy over the next three to six months.

Credit tightened further this month making it even more difficult for consumers and businesses to borrow. Fed Chairman Ben S. Bernanke today warned that the economy would probably slow for “several quarters” as spending and business investment weakened.

“October’s index will plunge,” said Ian Shepherdson, chief U.S. economist at High Frequency Economics Ltd. in Valhalla, New York, who correctly forecast the gain. The index “is consistent with recession, and it has not hit bottom yet.”

The leading index was forecast to decline 0.1 percent, according to the median of 53 economists in a Bloomberg News survey. Estimates ranged from a drop of 0.6 percent to a gain of 0.5 percent.

Stocks Rise

Stocks maintained gains following the report, reflecting a drop in global money-market rates. The Standard & Poor’s 500 index rose 2% to 959.6 at 10:50 a.m. in New York. Treasury securities were little changed.

The measure decreased at a 2.5 percent annual pace over the past six months. A decline of around 4 percent to 4.5 percent at an annual pace is one signal a recession is imminent, according to the Conference Board. The gauge met that requirement in January, when it dropped at a 4.7 percent pace.

“The extreme volatility in the financial market, and the near freeze-up of credit, will no doubt weaken the economy further,” Ken Goldstein, an economist at the Conference Board, said in a statement. “Data on hand reflect a contracting economy, but not one in free fall.”

Six of the 10 indicators in today’s report contributed to the gain. In addition to the money supply and interest-rate spread, consumer expectations, supplier deliveries and orders for capital and consumer goods, were positive.

Growing Pessimism

The jump in consumer expectations was already reversed this month. The Reuters/University of Michigan’s preliminary October sentiment index last week showed Americans’ outlook on the economy sank. Overall confidence dropped by the most on record.

A drop in building permits, an increase in jobless claims, a drop in stock prices and a decrease in manufacturing hours were negative factors in the leading index.

Economists surveyed by Bloomberg in the first week of October anticipated the economy contracted at a 0.2 percent annual pace last quarter and will shrink at a 0.8 percent pace in the last three months of the year. Declines in consumer spending will tip the economy into a recession, the survey showed.

“Incoming data on consumer spending, housing and business investment have all showed significant slowing over the past few months, and key determinants of spending have worsened,” Bernanke said today during testimony before Congress. “The pace of economic activity is likely to be below that of its longer-run potential for several quarters.”

Endorses Stimulus

Bernanke, broke with the Bush Administration, and endorsed consideration of a second fiscal stimulus package.

The housing slump is showing no indication of abating. Building permits, a sign of future construction, dropped 8.3 percent in September, matching the lowest level since 1981, and single-family home starts fell to a 26-year low, the Commerce Department reported last week.

The U.S. has lost 760,000 jobs so far this year, and the jobless rate held at a five-year high of 6.1 percent in September. More job cuts are on the way.

Danaher Corp., the maker of Craftsman tools and Tektronix measuring devices, said last week it plans to eliminate 1,000 jobs and close 12 factories. Lawrence Culp, chief executive officer of the Washington-based company, said in a conference call Oct. 16 that the steps were taken to “get ready for what may come” as the U.S. economy falters.

The Standard & Poor’s 500 index averaged 1217 in September, down from 1281.47 in August. Stock prices this month are down even more. The index averaged 1,001.38 during the first 17 days of October.

Coincident Index

The index of coincident indicators, a gauge of current economic activity, dropped 0.5 percent, the biggest decline since August 2005, after no change in August.

The index tracks payrolls, incomes, sales and production, which, combined with gross domestic product, are the figures used by the National Bureau of Economic Research to determine whether a recession has begun. The measure peaked one year ago, which is why some economists anticipate the group will eventually announce an economic contraction started in late 2007 or early 2008.

The gauge of lagging indicators decreased 0.2 percent. The index measures business lending, length of unemployment, service prices and ratios of labor costs, inventories and consumer credit.

Economic Indicators in U.S. Surprisingly Rise as Federal Reserve unfreezes credit markets. News on Oct. 20 - The index of U.S. leading economic indicators unexpectedly rose in September, led by a surge in the money supply as the Federal Reserve pumped cash into the economy to unfreeze clogged credit markets. What do you think about this news. Is it helpful?

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