Stock markets across the world plunged into the red today as jittery investors sold off stock amid fears over US consumer spending.
A 1.5 per cent slump in London and falls in Japan were followed by a hefty decline on Wall Street, putting a dent in gains that have seen markets recover to levels not recorded since the onset of financial crisis.
The benchmark Dow Jones Industrial Average plunged in early trading, falling 182 points - or 2% - to 9,134.28 by mid morning.
New York opened today on the back of a 3% drop in the Nikkei in Tokyo and amid tumbling stocks in the FTSE 100.
It represented a continuation of the drift downwards which started on Friday as a result of poor consumer confidence figures in the US.
Last week, retail giant Wal-Mart reported that its most important sales figures - from stores open at least a year - were down for the April to June period.
More gloomy news for investors came today when home improvement firm Lowes reported that poor weather and cautious consumer spending meant its sales were down 19% in the last quarter.
The sell off also comes after months of growth, with market watchers suggesting that prices may have been over-inflated.
John Lonkski, chief economist at Moody's Capital Markets Group, said: "Perhaps the rally has gone too far, too fast especially as we still haven't seen conclusive evidence that business sales have switched to a rising trend."
Joe Saluzzi, co-head of equity trading at Themis Trading, said: "The economics obviously don't support where we've been."
Tumbling world markets come despite signs that individual countries are pulling out of economic gloom.
Figures confirming Japan's exit from recession failed to halt the shares slide, which followed a sharp fall at the end of the previous session.
Japan's economy grew 3.7% at an annual pace in the second quarter, joining France and Germany in emerging from recession.
The failure of Tokyo to pull back from Friday's falls, rolled on to London when the FTSE opened today.
The benchmark index ended the day down 68.9 points to 4645.
Meanwhile sterling, which touched 1.19 euros earlier this summer, fell just below 1.16 euros, while it also dropped to 1.63 US dollars.
The pound has been hit hard as the UK's battered economy appears to be lagging behind others, with the recent weakening kicked off by the Bank of England's decision to pump in yet more cash.
Oil prices also eased back - to below 66 dollars a barrel - as the US economic concerns signalled demand may remain subdued.
David Jones, chief market strategist at IG Index, said traders were facing a "wall of red" on their screens.
He said the test now would be whether traders used the sell-off as a buying opportunity.
"At the moment, the broader recovery is still in place and it would not be a surprise to see shares claw back the lost ground over the next few days," he added.
Thin summer trading volumes are also heightening market volatility and traders believe the market recovery could get back on track if upcoming economic indicators in the UK and US are well received.
This week is busy for UK data, with the latest inflation data out tomorrow and retail sales due later in the week.Reuse content