Global stock markets tumble on more bad news

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Investors in global stock markets suffered another damaging day amid further economic gloom and mounting fears that the US government’s attempts to stabilise the financial system may ultimately lead to the nationalisation of the country’s biggest banks.

In the UK, the FTSE 100 index fell 3.22 per cent to close at 3,889, the first time it has slipped below 4,000 this year. The market took its lead from the Far East, where Japanese shares slipped by 2 per cent overnight, and the US, where share prices fell sharply on Thursday. The US stock market extended its losses for the week, with the Dow Jones closing down 100 points at 7,366, another six-year low.

The New York trading rout had threatened to be even worse before the White House spokesman said the administration continued to believe that “a privately held banking system is the correct way to go”.

That mitigated some of the losses on Bank of America and Citigroup shares, but they still closed down 4 per cent and 22 per cent, respectively. Bank of America’s chief executive, Ken Lewis, moving to stem fears that shareholders will be wiped out if the government steps in, issued a statement saying there is “no reason why a company that is profitable with strong levels of capital and liquidity and that continues to lend actively should be considered for nationalisation”. Such speculation is “based on a lack of understanding of our bank’s financial position, as well as a lack of appreciation for the adverse ramifications for our customers and the economy,” he added.

As markets fell, the price of gold advanced towards the $1,000-per-troy-ounce mark, hitting its highest level for seven months, as investors sought a safe haven from the turmoil.

Further poor economic news also had a negative impact, with a dismal trading update from Anglo American, the miner, which is shedding 19,000 jobs worldwide, acting as a further drag on stocks across Europe.

UK stocks have now fallen on six of the past seven trading days and the FTSE 100 has shed almost 15 per cent since the beginning of the year.

Investors are concerned that the financial crisis taking place in Eastern Europe will envelop Western banks.