Wall Street had its worst day since the 1987 stock market crash yesterday, as bleak economic data fed worries that all the efforts to unlock credit markets may not stave off a severe recession.
Federal Reserve chairman Ben Bernanke added to those concerns when he said the economy faced a ‘‘significant threat’’ from paralysed credit markets.
Dismal monthly US retail sales set the tone for the session, dropping the most in more than three years, while a measure of New York state manufacturing hit its lowest level since the index started in 2001.
The Dow and the benchmark S&P 500 suffered their worst one-day percentage drops since 1987.
The Dow Jones industrial average slid 733.08 points, or 7.87 per cent, to 8,577.91, while the Standard & Poor’s 500 Index tumbled 90.17 points, or 9.03 per cent, to 907.84.
The Nasdaq Composite Index sank 150.68 points, or 8.47 per cent, to 1,628.33.
The Nasdaq has now wiped out all of its gains from Monday’s 11 per cent rally, while the benchmark S&P 500 was up only one per cent from Friday’s close.
The trend began earlier in the day as Britain’s top share index lost 7.2 per cent, ending a two-day rally, as commodity stocks slumped amid growing fears of global recession.
The FTSE 100 ended down 314.6 points at 4,079.6, erasing a big chunk of the near 12 per cent rebound seen in the previous two sessions after plummeting 21 per cent last week, its second worst weekly fall on record.
That drop was mirrored across Europe as the FTSEurofirst 300 index of top European shares closed 6.5 per cent lower at 903.67 points, Germany’s DAX slipped 6.5 per cent and France’s CAC 40 shed 6.8 per cent.
‘‘It’s the beginning of the end of the financial crisis, but beyond that a global recession is looming,’’ said Emmanuel Morano, head of equity management at La Francaise des Placements, in Paris.
‘‘Fears over a global recession are justified, and these fears have been priced in very quickly. Valuations in the basic resources sector are apocalyptic. This sell-off really has the violence of the crash of 1987.’’
The gloomy economic news and rise in risk aversion came despite trillions of dollars pledged worldwide to recapitalise banks and stem the worst financial crisis since the 1930s.
There were glimpses the concerted government efforts already were taking effect. The rate banks charge each other for dollar, euro and sterling loans fell for the second straight day as recent bold steps from authorities around the world continued to thaw out frozen money markets.
In South America, the region’s economic powerhouse Brazil plummeted more than 14 per cent, triggering a trading halt, as the financial crisis battered markets worldwide.
Brazil’s currency, the real, also skidded 4.53 per cent lower to 2.19 per dollar, despite $1 billion in dollar-selling intervention by the central bank.
Brazil’s benchmark stock index crumbled after notching a 17 per cent gain the two previous sessions.
In Chile shares posted moderate losses, resisting a sharp global stock sell-off.
The Wall Street data intensified recession fears, as did the Federal Reserve’s Beige Book report, which showed economic activity weakened across the US in September as businesses revised capital investments and consumers curtailed spending.
Fears of recession knocked commodities lower, with Exxon Mobil tumbling 14 per cent as the price of oil fell.
US crude futures slid to a new 13-month low under $75 a barrel as fears of demand falling in a recession and slumping equities further pressured the oil markets.