Evidence of a weakening Chinese economy, feeble data from Australia and Britain and a darkening corporate outlook in the United States reinforced fears of a prolonged global recession today.
China's inflation fell to a 17-month low of 4 per cent in October, while trade figures were expected to show slowing imports, both serving as signs of a cooling economy and dampening hopes that China's growth will help cushion the impact of the global downturn.
"It shows the Chinese economy is in a sharp slowdown - production is falling, so is demand," said Zhang Yongjun, an economist with a government think-tank in Beijing, after the inflation data.
A fresh wave of gloom gripped equity markets as investors, already spooked by worries about the worsening outlook for US companies ranging from Goldman Sachs to Starbucks, sold shares in Japan, Australia and Hong Kong.
Financial bookmakers predicted major European markets would open down about 1.5 per cent.
Expectations profits will be hit hard by a recession some economists warn could rival the pain of 1981-82 cut short a brief spell of optimism yesterday that had been sparked by China's weekend announcement of a nearly $600 billion stimulus package.
US shares fell last night after Deutsche Bank said the equity value of once-mighty General Motors was now zero, sending its stock to a 62-year low, and analysts warned Goldman could post its first quarterly loss.
The New York Timesreported President-elect Barack Obama urged President George W. Bush to back immediate emergency aid for car makers at their first post-election meeting at the White House.
Yesterday the United States had pledged more support for AIG , increasing a rescue package for the stricken insurer by $27 billion to $150 billion and easing its terms.
And the fragility of consumer confidence in the world's biggest economy was underlined when electronics seller Circuit City filed for bankruptcy - the biggest retailer to do so since Kmart in 2002 - and coffee chain Starbucks reported disappointing quarterly earnings.
What began as a financial crisis last year, when bank lending dried up in the face of huge losses in the US housing market, is morphing into a broad downturn in the developed world. New powers such as China have been caught up in the domino effect.
A survey of business conditions from National Australia Bank showed confidence at a record low, stoking expectations the country is heading for its first recession since the early 1990s.
In Japan, exports fell nearly 10 per cent in the first 20 days of October, adding to the evidence that the world's second biggest economy was teetering on the brink of recession.
British retail sales fell for a fifth straight month in October and by the biggest amount in more than three years, a survey released on Tuesday showed.
Asian stock markets fell, with Japan's Nikkei down 3 per cent and Australia's S&P/ASX 200 losing 3.6 per cent.
Reuters