Global markets hammered as recession reality sinks in

A fresh wave of selling hit global stock markets Monday as weak economic news from around the world and confirmation of a US recession prompted a massive pullback from last week's gains. The Dow Jones Industrial Average sank 679.95 points (7.70 percent) to close at 8,149.09, in the fourth-steepest point loss in history for the blue-chip index. The Nasdaq composite plummeted 8.95 percent to 1,398.07 and the broad-market Standard & Poor's 500 index tumbled 8.93 percent to 816.21. A pullback was expected after a huge snapback rally over the past several sessions, with the Dow posting its best five-day percentage increase since 1932 of 17 percent. But selling began early and quickly became a freefall. Market action came as the economic panel recognized as the arbiter of business cycles said the US had entered recession in December 2007 based on its measure of income, employment and other factors. "The market has gotten off to a tough start to the week today, as recession fears have now become a reality, and the questions that remain are just how bad and for how long this recession will linger over us," said Michael Fowlkes, analyst for the online investment service Investors Observer. European markets were also sharply weaker, as the rally from last week came to a grinding halt after news of deeper economic woes in Germany, France and the full 15-nation eurozone and weak data from India and China. Jocelynn Drake at Schaeffer's Investment Research said the market responded to "a round of weak economic data around the globe that has stoked concerns that we may not have seen the worst of the economic slowdown." Fresh data released on Monday showed German retail sales fell 1.6 percent in October from the previous month, while in France a closely watched index of manufacturing activity fell to 37.3 in November, its worst-ever reading. In China, manufacturing activity hit a three-year low in November, underlining the fallout of the global financial crisis on emerging markets. Meanwhile, India's exports in October tumbled 12 percent from a year ago for the first time in three years, hit by slumping demand in its key US and European markets. Augustine Faucher at Moody's Economy.com said the confirmation of a US recession by the National Bureau of Economic Research only added to the gloom. "The important questions now are when will the recession end and how severe will it be," he said. "Moody's Economy.com expects the current downturn to last through the first half of 2009 and to be the worst of the post-World War II era. Even with a substantial stimulus package, unemployment is likely to peak close to 9.0 percent in early 2010." In Europe, London's FTSE 100 index closed down 5.19 percent, the Paris CAC 40 shed 5.59 percent while Frankfurt's DAX lost 5.88 percent on the grim news. "Economic growth figures have outlined the worst global recession since at least the 1980s while gauges of inflation expectation point to growing deflation fears across the G7," said Lena Komileva, an analyst at brokerage Tullett Prebon in London, referring to the Group of Seven rich countries. A deluge of economic data and company reports Monday suggested economic growth was slowing in powerhouse emerging markets China and India and reinforced expectations of a deep recession in advanced economies. In the US, a survey from the Institute of Supply Management (ISM) showed a weaker-than-expected reading while separate data showed construction spending down 1.2 percent in October. The ISM index fell 2.7 points to 36.2 percent, the weakest since May 1982. The problems appeared worldwide, even in fast-growing Asian economies. In China, manufacturing activity hit a three-year low in November, according to a survey. Meanwhile, India's exports in October tumbled for the first time in three years, hit by slumping demand in its key US and European markets. Exports fell by 12 percent from the same month a year earlier to 12.8 billion dollars as demand shrank, according to government figures. "It's time for another downturn," said Hideaki Higashi, a strategist at SMBC Friend Securities. "Investors are selling, anticipating a correction after the string of advances." In other markets, the Toronto S&P/TSX plunged 9.32 percent and Brazil's Bovespa sank 5.07 percent. Earlier in Tokyo, shares closed down 1.35 percent, Mumbai's stock market lost 2.78 percent and Seoul and Sydney each fell 1.6 percent. Hong Kong rose 1.6 percent and Shanghai gained 1.25 percent. Global stock markets had soared last week as governments rolled out measures to stimulate the global economy and fight against the credit problems in the financial sector. But like many times since the start of the financial crisis in mid-2007, a euphoric rally has been followed by a brutal correction.