Global stock markets took another battering Tuesday, with losses of almost nine percent in Hong Kong on fears of a US recession followed by sharp plunges in Europe.
The London FTSE 100 index was down 0.58 percent at 5,545.80 in mid-morning trade after having lost 1.53 percent in earlier deals.
In Paris the CAC 40 was off by 1.18 percent at 4,688.24 following an opening loss of 2.57 percent, while in Frankfurt the DAX had shed 2.67 percent to reach 6,608.86, recovering some ground after falling 5.44 percent at one point.
European exchanges on Monday suffered their biggest one-day falls since September 11, 2001 when the United States was hit by a wave of terror attacks.
With Wall Street closed overnight due to a US holiday, dealers said they had no fresh lead to halt the global rout set off by disappointment in President George W. Bush's economic stimulus package unveiled Friday.
Wall Street was expected to fall heavily when it reopens at 1430 GMT after Japanese share prices tumbled 5.65 percent to a 28-month low on Tuesday.
"The biggest two-day rout in seventeen years for the Nikkei 225 (in Tokyo) suggests another large-scale sell-off for global equity markets today with the US equity indices potentially surpassing the one-day plunge recorded on the first trading day after 11th September 2001," said Derek Halpenny of The Bank of Tokyo-Mitsubishi UFJ in London.
Dealers have said Bush's announcement last Friday for 140 billion dollars (97 billion euros) in temporary tax cuts and other measures to ward off a recession in the world's biggest economy was not good enough.
French Finance Minister Christine Lagarde said Tuesday that Bush must do more to explain how he will inject the funds into the US economy.
"For the moment, it is a bit vague," she told French radio.
"He has to explain a lot better where all this is going and at what speed," she told Europe 1.
In Brussels, the European Union's top economics official insisted that the the global economy did not face a recession.
"It's not about a global recession. It's about the risk of a US recession," Economic and Monetary Affairs Commissioner Joaquin Almunia said as he arrived for talks with EU finance ministers.
"The question is how the US will avoid a recession," Almunia said.
"I hope that they will be able to avoid a recession and in this case I think calm will come back."
Trading was briefly suspended in South Korea and India on Tuesday and Hong Kong share prices suffered their biggest ever one-day fall, closing down 8.7 percent, as investors dumped stocks on fears of a US recession.
China's main index shed 7.22 percent, Sydney plunged 7.1 percent, and Indian share prices tumbled 7.37 percent in early afternoon trade.
"There was a snowball effect of selling, mainly due to falls on other world markets, fears that troubles on the US financial markets are spilling over into the wider economy and finally that Japanese authorities are unable to do anything about it," said Toshihiro Matsuno, market research head at SMBC Friend Securities.
"Stability needs to emanate from the US markets and there is little that Japan can or would want to do," he said.
But Matsuno added that the market expected US authorities to try to calm markets before next week's Federal Reserve meeting, which is widely expected to slash interest rates.
"Although there are few economic indicators this week, the market is expecting US authorities to say or do something to tackle this problem -- other than rate cuts -- that would calm down markets," Matsuno said.
The stock market volatility will continue as long as US and European markets are unstable, said Yutaka Miura, strategist at Shinko Securities.
"Investors are waiting to see if US and European policy makers will come up with new measures," said Miura.
"An inter-meeting rate cut by the Federal Reserve or the advanced implementation of Bush's stimulus plan or the introduction of a public fund could be effective in bringing stability to the markets," he said.
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