LONDON (AFP) — European and Asian stocks dropped sharply Tuesday as concern about the credit crunch again spooked investors, but US markets showed some resilience to the prevailing mood of fear.
In London, the FTSE 100 index lost 1.31 percent to end at 5,440.50 points, in Paris the CAC 40 was down 1.54 percent to 4,275.61 points while in Frankfurt the Dax lost 1.43 percent to finish at 6,304.41.
Dealers said concerns about the US banks in particular unsettled investors, setting up Asia and Europe for a bad day that left most exchanges down 20 percent or more from their highs in 2007 -- the definition of a "bear market."
"Today's fall (in the FTSE) marks a full entry into bear market territory, even though most investors will have been feeling that this has been here already for some months," said Richard Hunter, head of equities at Hargreaves Lansdown stockbrokers.
He added: "At this precise moment, it is difficult to identify from where a positive catalyst might emerge."
Also commenting on the decline of the London market on Tuesday, Jonathan Loynes, chief European economist at the Capital Economics consultancy, said the FTSE had further to fall.
"The steep falls in equity prices seen over recent weeks have brought the UK stockmarket back into line with consensus expectations for the economy," he said.
"But with those expectations very likely to weaken further over the coming months, equities' adjustment may have further to go."
In Asia, Japanese shares closed 2.45 percent lower on Tuesday after briefly falling below 13,000 for the first time in nearly three months. Hong Kong lost 3.16 percent and Sydney fell 1.4 percent.
In the US, stocks drifted in a narrow range as investors remained cautious, but the falls were smaller than elsewhere.
The Dow Jones Industrial Average drifted down 0.10 percent to 11,220.80 at 1500 GMT as the main indexes wobbled in and out of positive territory.
The Nasdaq tech-dominated composite index shed 0.08 percent to 2,241.51 and the Standard & Poor's 500 index was off 0.33 percent at 1,248.12.
Falls in Europe and Asia were sparked by negative comment on the banking and home loan sector from US investment bank Lehman Brothers.
Lehman warned that the big US mortgage re-financing groups, Freddie Mac and Fannie Mae, could have to raise a combined 75 billion dollars (48 billion euros) in fresh cash to meet their commitments.
French banking shares were under heavy pressure, with declines of 2.01 percent at Societe Generale, 1.84 percent at BNP Paribas and 2.65 percent at Credit Agricole.
"Everyone is reassessing the widely-held view that the worst of the credit crisis would be over by now and coming to the same conclusion -- the worst may not be over and it might last well into 2009," said Ed Yardeni of Yardeni Research.
On other financial markets Tuesday, oil prices fell sharply to trade at about 136 dollars a barrel after hitting highs near 147 last week.
This benefited travel companies and airlines such as London-listed British Airways, which rose 5.45 percent to 217.25 pence, and easyJet which gained 7.28 percent to 272.75 pence.
Meanwhile, eight of the world's most powerful leaders called Tuesday for efforts to cool sizzling commodity prices, warning that soaring fuel and food costs were a threat to world economic growth.
The Group of Eight rich nations said it was ready to take action to cushion global growth from runaway commodity costs.
But they stopped short of announcing concrete steps in a joint statement on the economy released on the second day of a summit in northern Japan.
G8 powers -- Britain, Canada, France, Germany, Italy, Japan, Russia and the United States -- said they remained positive about the long-term resilience of their economies, noting that emerging economies were still growing strongly.
At the same time, the world economy was "facing uncertainty" and risks to growth remained.
They expressed "strong concern" about oil and food prices, which they said "pose a serious challenge to stable growth worldwide, have serious implications for the most vulnerable and increase global inflationary pressure."
The statement made no mention of the weakness of the US currency, although US President George W. Bush told fellow G8 leaders that he was committed to "a strong dollar."
In foreign exchange market activity, the dollar fell slightly against the euro on Tuesday.
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