European stocks tumbled, driving the Dow Jones STOXX 600 Index to its worst week on record, amid concern the deepening credit crisis will send the global economy into recession.
Rio Tinto Group, E.ON AG and Barclays PLC fell more than 10 percent. Nobel Biocare Holding AG plummeted 26 percent after the world’s largest maker of dental implants said it may not meet its full-year guidance. Total SA sank 7.7 percent as oil slipped below US$80 a barrel on concern the economic slowdown will stifle demand.
The STOXX 600 slumped 7.5 percent to 205.13, extending this week’s decline to 22 percent, the most since records began in 1987.
“It’s very clearly a crash,” Jim Rogers, chairman of Singapore-based Rogers Holdings, said in a Bloomberg Television interview. “People are selling everything no matter what the fundamentals. It’s forced liquidation.”
Shares earlier pared some of their declines after Italian Prime Minister Silvio Berlusconi said EU and G8 leaders were discussing the idea of closing the world’s financial markets while they “rewrite the rules of international finance.”
Berlusconi later reversed his comments, saying “I heard it on the radio” and that the hypothesis wasn’t put forward by any leader or himself.
More than US$25 trillion has been erased from global equities this year. Central banks from London and Frankfurt to Washington and Hong Kong this week were forced to cut interest rates after the yearlong credit-market seizure stoked concern banks will run short of money.
The US’ Standard & Poor’s 500 Index fell as much as 7.7 percent on Friday, while Japan’s Nikkei 225 Stock Average capped its biggest plunge in at least half a century. Oil fell below US$80 a barrel for the first time since last year and copper headed for its largest weekly decrease in two decades.
The cost of borrowing in dollars for three months jumped to the highest level since Dec. 27, the British Bankers’ Association said.
The London interbank offered rate, or Libor, that banks charge each other for such loans rose 7 basis points to 4.82 percent, the BBA said on Friday. The Libor-OIS spread, a gauge of cash scarcity among banks, widened 11 basis points to 365 basis points. One basis point is 0.01 percentage point.
“A very dangerous mix has taken place in the money and credit markets and hedge funds are clearly withdrawing flows from equities,” said Francisco Salvador, director at Venture Finanzas SA in Madrid. “We are waiting for some rational order to be restored, and very abrupt sell-offs are always followed by abrupt rebounds, but meanwhile we’ll see panic.”
The VSTOXX Index, which measures the cost of using options as insurance against declines in the Euro STOXX 50 Index, surged 39 percent to 81.03 on Friday, the highest since records began in 1999.
National benchmark indexes decreased more than 4 percent in 16 of the 17 western European markets that were open. The UK’s FTSE 100 lost 8.9 percent, the biggest drop since October 1987, while France’s CAC 40 retreated 7.7 percent.
Iceland on Thursday suspended equity trading on Friday until tomorrow after the government seized Kaupthing HF, the country’s biggest bank.
Exchanges in Russia and Ukraine were suspended indefinitely. Russia’s government will start buying stocks of domestic companies next week to help support prices, Russian Prime Minister Vladimir Putin said.
Italy’s securities-market regulator Consob banned all short sales on the country’s stocks.
The cost of default protection on corporate bonds soared to records on concern the credit crisis will trigger more failures. Credit-default swaps on Europe’s benchmark Markit iTraxx Crossover index surged 63 basis points to 736, JP Morgan said.
“The wheels of commerce have effectively seized up,” said Kate Schapiro, who oversees US$250 million in equities at Sentinel Asset Management in San Francisco. “Trapped by the fear of losing everything, we’re seeing one-sided selling.”
The IMF will use a “rapid-fire” emergency-loan program to lend hundreds of billions of dollars to emerging markets as the credit squeeze threatens to hobble nations that until this year were weaning themselves off the fund’s aid.
Rio Tinto, the world’s third-largest mining company, lost 12 percent to 2,424 pence. E.ON, Germany’s biggest utility, sank 10 percent to 25.32 euros.
The MSCI Europe Index traded at 8.61 times the current earnings of the companies in the index on Thursday, the cheapest since September 1981, data from JP Morgan Chase & Co in London showed. The MSCI World Index traded at 10.85 times, the lowest since October 1982, the data show. The S&P 500 traded at 17.39 times earnings, the cheapest since September last year, Bloomberg data show.
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