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Fears grip investors as global equities routed

LONDON - Europe joined Asia's panic selling of stocks on Friday, knocking the benchmark world equity index to a 5-year trough, while the low-yielding yen jumped as fears grew that policymakers' efforts to contain the global financial crisis won't be enough.

Equity trading in Russia, Iceland, Austria, Romania, Ukraine and Indonesia has been halted while nearly half of Milan stocks are suspended for excessive losses, just hours before finance chiefs from Group of Seven rich nations meet in Washington.

So far, measures from the United States, Britain and other countries to fight the worst financial crisis in 80 years -- even this week's coordinated interest rate cuts -- have failed to calm credit and money markets and quell investor fears.

"The stark reality is that markets have judged the coordinated interest rates cut not to have been enough, and we are now left wondering how best to get ourselves out of this downward spiral," said Chris Hossain, senior sales manager at ODL Securities. "One gets the feeling that this market is now strictly confined to the brave." MSCI world equity index fell more than 4 percent at one point to a five-year low, losing a fifth of its value this month alone. The index has lost 43 percent since January, on track for its worst yearly performance in 20 years.

Relentless sell-off

Japanese stocks fell nearly 10 percent for their biggest one-day percentage loss since 1987. Yamato Life Insurance, an unlisted midsized insurer, became the first Japanese financial institution to collapse in this crisis.

In Japan, investors dumped even domestic government bonds -- considered safer than most other assets -- as fears of counterparty defaults froze the key repurchase market, prompting dealers to sell bonds to secure cash.

"This is panic... There's nothing left for us to trust," said Takashi Ushio, head of investment strategy at Marusan Securities. "Investors are scurrying to convert to cash. A lack of confidence is coupling with panic."

On Wall street, stocks tumbled for a seventh straight session on Thursday.

In the European credit market, sentiment deteriorated sharply with spreads measured by the Crossover index hitting a fresh high of 720 basis points.

"The market is catching up with the grim reality that this isn't going to be a mild downturn. The mass leverage that people have built up over the past decade or more is catching up, and it's going to be a long and painful process," said James Hamilton, bank analyst at Numis.

Emerging stocks fell 4.2 percent to a fresh three-year low while emerging market spreads widened 10 basis points to trade 556 basis points over U.S. Treasuries.

U.S. crude oil fell 5 percent to a one-year low of $82 a barrel as fears rose over cooling demand for energy.

The December bund future rose 20 ticks as investors rushed to buy safer government bonds, with yields in other euro zone countries such as Greece moving as much as 100 basis points above German counterparts -- considered most liquid.

The yen, which benefits from a surge in risk aversion, rose 0.4 percent against the dollar to 99.76 yen while sterling hit a five-year low of $1.6802 at one point.

The dollar was little changed against a basket of major currencies.