LONDON (AFP) — Global stock markets plunged Monday as the dramatic collapse of US investment bank Lehman Brothers sparked sharp losses across the financial sector on fears more bad news is to come, dealers said.
With European bourses down between three and four percent, Wall Street slumped after a bankruptcy filing by Lehman Brothers and the distress sale of Wall Street rival Merrill Lynch to Bank of America.
The central banks, led by the US Federal Reserve, rushed to inject tens of billions of dollars into the money markets to head off any rush on liquidity as investors pulled money out of stocks and looked for safety.
Asia tumbled first on the news Monday, followed by the Middle East, Russia and then Europe before the shockwave hit the North and South American markets.
"The collapse of Lehman Brothers has sent a major jolt through global financial markets as it is by far the biggest victim of the credit crisis that started in August 2007 and had been considered too big to fail," said Global Insight economist Howard Archer.
"There is obviously widespread concern about other banks' exposure to Lehman Brothers, not only in the US but also in Europe. Lehman's collapse also increases concerns that other banks could fail."
At the same time, the dollar fell heavily against the euro before recovering some lost ground in volatile trade while oil prices slumped to seven-month lows under 93 dollars on fears the crisis will slow growth and curb energy demand.
On Wall Street, stocks were down 2.72 percent at around 1600 GMT.
"Everything else is pushed aside as the stock market attempts to figure out what the sale of Merrill and bankruptcy of Lehman will do to both the stock market and the economy," said Al Goldman at Wachovia Securities.
Some analysts feared a tidal wave of financial trouble as firms linked to Lehman Brothers scrambled to cover their positions, possibly leading to more selling pressure.
They said that given the latest twist to the US subprime crisis, which is claiming ever bigger victims, the US Federal Reserve was expected to cut interest rates when it meets on Tuesday.
In Canada, stocks fell about three percent while the Brazilian market, South America's largest, lost five percent at the open but later steadied to show a loss of around four percent.
In London, the FTSE 100 index was down 3.92 percent at 5,204.20 points. In Paris, the CAC 40 tumbled 3.78 percent to 4,168.97 points and in Frankfurt the DAX shed 2.74 percent at 6,064.16 points.
The Euro Stoxx 50 index of leading eurozone companies lost 3.67 percent.
The euro was at 1.4168 dollars.
In Asia, where Tokyo and Hong Kong were among several markets closed for a public holiday, shares fell sharply, with Sydney down 1.8 percent and Singapore off 3.27 percent.
In Europe, the banks bore the brunt of the losses as the Lehman Brothers bankruptcy undercut any notion of business as usual, dealers said.
In London, HBOS plunged 36 percent at one stage but managed to finish with a loss of 17.55 percent, reflecting concerns about a bank that had to raise fresh cash earlier this year after massive losses on its US subprime exposure.
Royal Bank of Scotland, similarly in the firing line, lost 10 percent and Barclays was down 9.84 percent.
"This story is likely to dominate proceeding for the next few sessions, dragging financial stocks further into the red, creating yet more fears over the strength of the global financial system," said CMC Markets dealer Ian Griffiths.
In Paris, one dealer said investors wanted to know why Lehman Brothers could not be saved -- was the company in such a bad state or was there no funding available to do a deal in tight markets?.
This had resulted in "an absolute crisis of confidence without precedent," the dealer said,
Among the banks, BNP Paribas was down more than 7.0 percent and Societe Generale lost nearly 10 percent.
It was a similar day in Frankfurt, with Commerzbank plunging 9.55 percent as Deutsche Bank shed 6.76 percent.
Elsewhere in Europe, Brussels lost 3.49 percent, Madrid tumbled 4.50 percent, Italy was down 3.72 percent, Dutch stocks were off 3.64 percent and Switzerland fell 3.83 percent.
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