JEDDAH: US stocks tumbled and European shares had their lowest close in five-and-a-half years yesterday, continuing a global collapse in equities as investors fearing a long and deep worldwide recession cashed out of risky assets.

Rates on major currencies gyrated wildly amid the frenzied stocks rout, sending the dollar and yen to multiyear highs against the euro and sterling as investors brought investments home in search of shelter.

Sterling suffered its biggest one-day drop against the dollar since September 1992 following news that Britain’s economy contracted in the third quarter for the first time in 16 years.

Gold also fell, while US government bonds rose as investors piled into this traditional safe haven.

“Markets still reflect great uncertainty about how deep and long a global recession will be,” said Brad Bourland, chief economist at the Riyadh-based Jadwa Investment.

Echoing Bourland’s views, Habib F. Faris, CEO and managing director of the London-based FinaVestment Ltd., said: “What we see today is a continuation of the uncertainty overwhelming global markets coupled with heightened fear of investors. There is no short-term panacea and anyone saying the opposite is dead wrong. It is as if financial markets are out of control. Another ‘mini-crash’ is normal. I do not see any good news but see risk of further shortfalls.”

He added, “The growing belief that the world will suffer a punishing economic recession has investors dumping stocks. Everyone is in a panic mood with no clear-cut direction from anyone. I believe there isn’t anyone who could calm investors in these turbulent markets.

“The gloomy outlook influenced investors worldwide to believe that the government rescue efforts of global economy are not working and consequently markets are heading toward a fall of substantial magnitude and proportions.”

Arab stock markets, which tumbled last week, were closed for holiday yesterday.

Ghassan Hussein Badkook, manager, corporate public relations department at the Jeddah-based National Commercial Bank (NCB), said: “Despite the fact that Saudi Arabia is part of the global economy and hence it would be affected by the current financial turmoil, the Saudi fundamentals are quite strong and different from the fundamentals of the Western industrial nations. Therefore, contrary to the generalized gloomy guesses, Kingdom remains one of the least affected countries by the current crisis. It is largely because our government manages its foreign investments in a cautious manner and it does not have direct investments in international banks.”

Policymakers in the Arab states will this weekend seek to agree a common front against the global economic crisis in the wake of individually tailored measures already taken by each country.

Finance and economy ministers as well as central bankers from the six nations of the Gulf Cooperation Council will hold an extraordinary meeting today in Riyadh, amid grim prospects for the world economy.

In New York, the Dow Jones Industrial Average was down 274.78 points, or 3.16 percent, at 8,416.47. The Standard & Poor’s 500 Index was down 29.09 points, or 3.20 percent, at 879.02. The Nasdaq Composite Index was down 35.75 points, or 2.23 percent, at 1,568.16.

News that existing-home sales in the United States rose 5.5 percent last month — the biggest gain since July 2003 — helped put a floor under sentiment since the housing market has been at the center of the economic troubles.

The Dow Jones home builders index was up 2 percent, and Pulte Homes Inc. was the top gainer on the S&P 500, up 9.3 percent. The recent turmoil, however, has lowered the bar for a “good day” on Wall Street. “I would say today, if we can close the day with the market down say 3 percent or less, we will have had a very good day,” said Peter Jankovskis, a chief investment officer at Oakbrook Investments LLC in Lisle, Illinois.

World stocks, measured by MSCI’s all-country world index, were down 4.63 percent but had trimmed their losses after hitting five-year lows during the session. Investors dumped emerging market stocks with particular vigor, pushing them down 7.42 percent.

European shares had their lowest close since mid-2003, with the FTSEurofirst 300 index of top European shares closing down 4.93 percent at 829.73 points.

Japan’s Nikkei tumbled almost 10 percent by the close of trading in Tokyo. Japan’s huge external surpluses and already rock-bottom interest rates led the yen to outperform, with the dollar/yen exchange rate losing about 7 percent at one point to a 13-year low of 90.90 yen.

However, the dollar, the victim in markets in recent years, continued to benefit against other currencies from investors repatriating savings back to the US.

The dollar was up against a basket of major trading-partner currencies, with the US Dollar Index up 1.53 percent at 86.075 from a previous session close of 84.775. The euro was down 2.30 percent at $1.2682 from a previous session close of $1.2980. Against the Japanese yen, the dollar was down 3.67 percent at 94.24 from a previous session close of 97.830.

As is often the case, government bonds were big beneficiaries of the stocks sell-off, but pared their gains after the worst of the stocks rout passed.

— With input from Abdul Jalil Mustafa and agencies