LONDON - European and Asia stock markets fell sharply on Monday and Wall Street was set to open lower after banking giant HSBC said it was seeking a huge capital injection to survive the global economic crisis, traders said.
In late morning trading, London's FTSE 100 index had slumped by 3.31 percent to 3,703.46 points, Frankfurt's DAX 30 dropped 2.34 percent to 3,754.07 points and in Paris the CAC 40 shed 2.87 percent to 2,624.88.
Fears over the health of the banking sector grew after HSBC announced plans to raise almost 18 billion dollars by offering new shares in a record British rights issue, and axe 6,100 US jobs, as the financial crisis sent its profits plunging.
"The FTSE 100 fell... tracking large falls in the US and Asia, as concern over global banks mounts," said City Index market strategist Joshua Raymond.
Asian stocks closed sharply lower on Monday, with Tokyo down 3.81 percent, near to last week's four-month lows. Sydney slid 2.8 percent to the weakest level in five years, Soeul tumbled 4.2 percent and Hong Kong ended 3.9 percent lower.
A plunge in Japanese new vehicle sales and a record contraction in factory output in South Korea added to worries about the region's economic downturn as consumer demand slumps in recession-hit Western markets.
"There's just no good news," Macquarie Private Wealth associate director David Halliday told Dow Jones Newswires. "The US economy is in the worst shape it's been for probably 50 or 60 years, so it's hard for equities to rally."
One bright spot was Shanghai where shares closed up 0.51 percent on optimism over the government's stimulus plans.
Investors took their cue from New York, where the Dow Jones slid 4.1 percent to end Friday at its lowest level since 1997, while the broad-market Standard & Poor's 500 sank 4.5 percent to its worst close since December 1996.
"The Dow Jones looks set to open today's session below the psychological 7,000 level for the first time since 1997 as global financial crisis grips the major indices," said CMC Markets dealer Ian Griffiths.
"Another bailout for insurance giant AIG will be the main focus when stocks open later this afternoon."
US group AIG is to receive up to an additional 30 billion dollars in federal assistance in the latest overhaul of its government bailout, US media reported Sunday.
Under the new plan, American International Group, Inc. is to repay most of the 40 billion dollars it owes the Federal Reserve with equity stakes in two of its overseas units, according to The Wall Street Journal.
The coming week could bring more bad news, with February US auto sales expected to be weak and a payrolls survey expected to show further massive job losses. The Dow has dropped 19.5 percent so far this year.
Investors were disappointed by news of a 6.2 percent contraction in the US economy in the fourth quarter of last year that was far worse than the earlier government estimate of a 3.8 percent decline.
Also denting sentiment was an announcement that the US government would own up to 36 percent of Citigroup under a deal to convert up to 25 billion dollars of public capital injected into the ailing bank to ordinary shares.
The conversion does not call for more government funds but helps shore up the troubled banking giant's capital position.
"This increased fears that a creeping nationalisation of other banks is likely, and that current investors would be all but wiped out," said Dariusz Kowalczyk, chief investment strategist at SJS Markets in Hong Kong.