JEDDAH/LONDON: Mounting fears that global financial turmoil will now spark a recession in Europe and the US rattled investors and sent share prices plunging yesterday.

Market analysts said that while extraordinary efforts by governments to shore up shaky banks may have boosted confidence earlier this week, they now seem unlikely to head off a US and European recession.

Most analysts now say that a US recession appears virtually certain as a crippling credit crunch and housing meltdown drags down the rest of the economy despite the $700 billion rescue plan approved by Congress that will include $250 billion offered to banks to help restore credit flows.

In Brussels, European Union leaders gathering for a summit warned that the financial crisis was far from over and the real cost to jobs and growth was only now becoming clear.

On Wall Street, the Dow Jones Industrial Average was down 3.37 percent at 8,997.10 points in midday trade while the tech-heavy Nasdaq had fallen 3.23 percent to 1,721.55.

In line with Wall Street, leading European stock markets plunged 6-7 percent at the close of trade.

The London FTSE 100 index of leading shares shed 7.16 percent to 4,079.59 points while in Paris the CAC-40 fell 6.82 percent to 3,381.07 points. The Frankfurt DAX gave up 6.49 percent at 4,861.63 points.

There were declines of 5.93 percent in Brussels, 5.06 percent in Madrid, 5.58 percent on the Swiss Market Index, 5.33 percent in Milan and 7.56 percent in Amsterdam.

Russian stock markets shed around 9 percent, with investors driven away by pessimism about sharply falling oil prices as well as the disappointing global economic outlook.

The benchmark index on the dollar-denominated RTS exchange slumped 9.26 percent to close at 788.98 points, while its counterpart on the ruble-based MICEX dropped 8.67 percent to 689.71 on a day interrupted by suspensions.

The trading day began with big losses in much of Asia. Hong Kong closed down 5 percent, Seoul slid 2 percent and Sydney ended 0.9 percent lower. But Tokyo added 1.06 percent, building on Tuesday’s record 14 percent gains.

The yen emerged the winner against the dollar and euro yesterday, with Japan seen as a relative safe haven in the financial storm amid fears of a sharp and potentially deep recession.

According to Merrill Lynch’s Survey of Fund Managers for October, investors are waiting for the right conditions to return to equity markets amid the most pessimistic outlook yet recorded.

The survey, completed as global equity markets fell in value by 18.7 percent, shows that almost seven out of 10 respondents (69 percent) believe that the global economy has entered recession, up sharply from 44 percent one month ago. The proportion of investors who believe that monetary policy is too restrictive has reached a net 59 percent, representing a new high for the survey.

But low risk appetite and a belief that equities are undervalued could provide the foundations for a rally. Growing risk aversion has led to a record 49 percent of respondents who are overweight cash. The number of respondents who believe equities are undervalued has reached a 10-year high, at 43 percent.

In late European trade, the euro was at 137.79 yen, down from 139.01 yen in New York late Tuesday.

The euro also fell to 1.3547 dollars from 1.3618 dollars. The dollar was lower at 101.54 yen from 102.07 yen.

The dollar was under pressure after Janet Yellen, head of the San Francisco branch of the Federal Reserve, said Tuesday that the US “appears to be in a recession.”

On the London Bullion Market, the price of gold rose to $847 an ounce at the fixing from $832.50 late on Tuesday.

The price of oil fell below $71 yesterday, its lowest level for more than 13 months, as recession fears raised concerns about a prolonged drop in energy demand, analysts said. The global financial crisis is hitting world demand for oil, although the effect on emerging economies is unclear, the Organization of Petroleum Exporting Countries (OPEC) said yesterday.

The OPEC slashed its estimate of growth in demand this year and shaved its estimate for 2009, largely because of an “excessive” easing of demand in the US, the single biggest energy market. Brent North Sea crude for November delivery fell to $70.70 a barrel — the lowest level since late August 2007 — before recovering to $70.93, down $3.60 compared to Tuesday’s close.

New York’s main contract, light sweet crude for November, shed $3.40 to $75.23 a barrel after hitting an intra-day low point of 74.92. Brent crude has fallen by more than half from a record high of $147.50 in July, when prices rocketed on fears of supply disruptions.

Saudi shares rose slightly yesterday as other Arab stock markets closed lower in line with bourses in Europe and Asia, following two days of strong gains, on renewed concerns over the global financial crisis.

Performance was mixed, with some markets extending early losses and others clawing back some negative territory.

The Saudi stock market recovered its initial losses of eight percent to close up 0.5 percent on 6,863.15 points after the leading petrochemicals and banks sectors rebounded.

The Tadawul All-Share Index (TASI), which had rebounded 17.5 percent in the past two days, also ended the week up 11.4 percent but was still down 37.83 percent on the year. Over SR10 billion worth of shares traded yesterday.

The Saudi stock market opens Saturday through Wednesday, while other markets in the Gulf operate Sunday through Thursday.

Since Monday, the Saudi market recovered more than $55 billion of capitalization and now stands at close to $360 billion.

Muqbil Al-Dakir of King Abdulaziz University said the financial crisis would affect economic development of countries around the world including Saudi Arabia. “The catastrophe has taken place in the financial center of the world and all countries are linked with it in one way or another,” he said. Al-Dakir said the crisis would have its negative impact on oil revenues and affect the Kingdom’s economy.

Other Gulf market finished the day lower.

The Kuwait Stock Exchange, the second largest in the Arab world, finished down 0.64 percent at 11,719.70 points, after opening about two percent lower.

It had bucked the trend in other Gulf markets and dropped in the past two days in reaction to modest nine-month profits by a number of major banks.

The Dubai Financial Market, which surged more than 22 percent on Monday and Tuesday, extended early losses to close down 7.44 percent at 3,427.87.

Developer Emaar, the market leader, sank almost 10 percent, with the real estate sector down 9.85 percent.

The Abu Dhabi Securities Exchange, which also gained 15 percent over two days, also went from bad to worse, dropping 2.13 percent to close at 3,525.82.

The key real estate sector in the Emarati capital slumped 4.1 percent.

The tiny Muscat Securities market shed just 0.03 percent, while the Bahrain Stock Exchange was down one percent. The Doha Securities Market finished trading 3.3 percent lower at 8,098.95 points.

“What happened today is a clear indication that the Gulf stocks are still affected by panic from the global crisis,” said Walid Mohamed, financial analysts at Kuwait’s Global Investment House.

“It is an indication that investor confidence has not been fully restored and it may take some time to recover. Investors are taking a wait-and-see attitude.”

In Egypt, the CASE-30 stock index closed down 2.70 percent to fall below the 6,000-mark, after sliding 3.15 percent at the open.

The key index lost more than 20 percent of its value last week amid widespread global selling. Monday and Tuesday saw strong gains, as elsewhere in the region.

The index has lost more than half its value in six months since hitting a high of 12,000 points in May.

— With input from agencies