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The Independent Online
MORE THAN pounds 34bn was wiped off the value of the stock market yesterday as fears about the impact of the crisis gripping Russia and worries about a backlash following Thursday's bombing of Sudan and Afghanistan by the United States sent financial markets into free fall around the world.

In the City, the FTSE 100 index of leading shares closed 190.4 points down at 5,477, its biggest fall since the October 1987 crash, while on Wall Street the Dow Jones was trading more than 250 points off at 8,360.

Currencies in Asia, Latin America and Eastern Europe came under heavy selling pressure as investors who had been caught on the hop by Russia's surprise devaluation of the rouble on Monday decided yesterday to cut and run.

The worry is that after crises over the past year in Korea, Indonesia, Japan, and now Russia, another major economy - most probably Hong Kong or China - may be about to blow.

"Markets are driven by fear and greed," said Bob Semple, analyst at BT Alex Brown, a US investment bank, "They have got fear big time." He added: There is more of this to come."

Dealers said that investors who had been buying heavily into these markets in the hope of spectacular returns had suddenly realised that after shelling out more than $40bn (pounds 24.7bn) in rescues around the world since last year's Asian crisis broke, the International Monetary Fund has no more money in the kitty to bail them out.

They have also been spooked by the fact that the Russians were prepared to default on some of the obligations to foreign investors, although following pressure from some of the big foreign banks they have agreed to think again.

The Russian crisis has come at a time of a deteriorating outlook for both the US and the British economies, which had already threatened to end a seven-year bull market in shares on both sides of the Atlantic.

Stock markets in Western Europe and Latin America were also sharply down. Investors were shifting massively into government bonds in the US and Western Europe, which were seen as lower risk. The pound registered strong gains as worries about the domestic backdrop became less prominent.

Germany ,which was under a cloud because of its banks' relatively high exposure to Russia, saw its stock market index, the Dax, fall by more than 4 per cent. Representatives of Germany's big banks met the Russian authorities yesterday.

"The appetite for risk in the world has gone to an all-time low," said Stuart Brown, head of emerging market research at Paribas, the French bank. "People are saying: `we don't know where or when the next shock is going to come from - China? Hong Kong? more in Russia? Latam? - let's get out together'."

World markets plunge, page 17

Contagion spreads, page 19

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