NEW YORK (AFP) - - Mounting fears of recession in the United States and Europe drove a global market rout Wednesday despite massive government efforts to combat the world financial crisis.
Panic gripped Wall Street after a dismal US retail sales report reminded investors that consumer spending -- which accounts for the bulk of US economic activity -- is declining sharply.
The Dow Jones Industrial Average slid 733.08 points (7.87 percent) to close at 8,577.91 in the worst one-day point loss since last month's record 777-point decline and the steepest percentage drop since 1987.
In an even more brutal decline, the broad-market Standard & Poor's index plunged 9.03 percent to 907.84.
The tech-heavy Nasdaq sank 8.47 percent to 1,628.33 in another violent session for stocks, despite massive rescue efforts for the ailing global banking sector.
"The stock market is buried by recession fears," said Al Goldman at Wachovia Securities.
Markets convulsed around the globe as the London FTSE 100 index of leading shares shed 7.16 percent while in Paris the CAC 40 fell 6.82 percent and the Frankfurt DAX gave up 6.49 percent.
Market action came on news that US retail sales slumped 1.2 percent in September, a sign of deeper troubles for an economy ailing from a financial market firestorm and tight credit.
The drop in sales was the steepest since August 2005 and weaker than market expectations for a 0.7 percent decline.
"The retail sales data highlighted the market's most pressing concern now, which is the direction of the economy," said Gregory Drahuschak at Janney Montgomery Scott.
"The credit market situation remains in flux, but traders in many cases are looking beyond this and wondering how long a slowdown will last and how deep it will be."
In another grim report, the New York Federal Reserve's Empire state index of factory activity in the northeastern region crashed to minus 24.6, its weakest reading ever.
Carl Weinberg, chief economist at High Frequency Economics, said that even if credit flows are restored, the troubles are not over.
"The world economy is still headed into a recession despite the global financial market rescue effort," Weinberg said.
"The decline will be deep and protracted. It has already started. Nowhere is the economic house in greater disorder than Euroland, although some may argue that Japan is a bigger mess."
Most analysts now say that a US recession appears virtually certain as a crippling credit crunch and housing meltdown drags down the rest of the economy despite the 700-billion-dollar rescue plan approved by Congress that will include 250 billion dollars offered to banks to help restore credit flows.
"While the (US) government's steps to restore the health and credibility of the banking system were absolutely essential, we didn't see an immediate big response in the credit markets," said Fred Dickson, analyst at DA Davidson & Co.
"It appears too early to conclude that the banks are starting to lend to each other and the credit crisis is a thing of the past. In the meantime, we continue to believe that the stock market will remain volatile. We don't see investors flocking back to the stock market on the buy-side until they begin to see more tangible signs that the economy is beginning to function more normally," Dickson said.
In Brussels, European Union leaders gathering for a summit warned that the financial crisis was far from over and the real cost to jobs and growth was only now becoming clear.
"We are facing a major threat," said Luxembourg's Prime Minister Jean-Claude Juncker, chairman of the Eurogroup of finance ministers, as he entered the talks. "We have to be careful in the coming weeks."
"We are living in unprecedented times and we need an unprecedented level of coordination," the European Union's Commission president, Jose Manuel Barroso, told reporters before leaders from the 27 EU member states began a closed-door session at which a common aid program was approved.
At the emergency talks in the French capital, the leaders from the countries sharing the euro currency, plus Britain, agreed to prop up the hardest-hit banks through cash injections and underwriting interbank loans.
Russian stock markets shed around nine percent in a selloff driven by growing concerns about sharply falling oil prices as well as the disappointing global economic outlook.
The benchmark index on the dollar-denominated RTS exchange slumped 9.26 percent and its counterpart on the ruble-based MICEX dropped 8.67 percent on a day of multiple trading suspensions.
In Latin America, Brazil's Ibovespa plunged 11.39 percent, Argentina shed 12.14 percent and Venezuela slipped 0.64 percent.
Canada's S&P/TSX index retreated 6.35 percent.
The trading day began with big losses in much of Asia.
Hong Kong lost 5.0 percent, Seoul 2.0 percent and Sydney ended 0.9 percent lower. But Tokyo added 1.06 percent, building on Tuesday's record 14 percent gains
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