Fears Over Us Economy Weaken World Markets

The increasingly precarious state of the US economy sent stockmarkets into retreat today as Asian markets closed sharply down, with Japan's Nikkei benchmark index falling almost 7%.

Shares also tumbled in Hong Kong, Hong Kong and Australia following another plunge overnight on Wall Street, where fears of recession sent the Dow Jones industrial average down 427 points, or nearly 5%, to its lowest level for five years.

Britain's FTSE 100 index was down 90 points at 3915.73 in early trading - a fall of more than 2% - shortly after it opened at 8am, taking it below the 4,000 level. Yesterday it tumbled 5.8%. Other European markets were also in retreat this morning.

Asia's slide was seen as inevitable after the US Federal Reserve warned that the US economy would contract through the first half of next year, and concern intensified over the fate of the country's top three car markers.

"We've gone past the poor sentiment stage," said Miles Remington, head of Asian sales at BNP Paribas Securities in Hong Kong. "People are looking for any kind of positive and there are just no positives out there. Everyone seems to be united in the depressed global outlook."

The Nikkei 225 was spooked by new figures showing Japan had registered its second trade deficit in three months as a result of the strong yen and plummeting demand in the key US and European markets for Japanese cars and electronics.

The Nikkei dipped 570 points to close at 7703, its lowest since it hit a 26-year low in late October. The index has lost 9% this week and 10% since the start of the month.

Earlier this week Japan announced it had slid into recession for the first time in seven years after posting two consecutive quarters of economic contraction.

The eurozone and Hong Kong are also in recession, and the US is expected to officially join the list by the start of next year.

Government figures released today showed Japanese exporters suffered their biggest decline in seven years last month. Exports dropped 7.7 % in October, the biggest fall since 2001. Exports totaled ¥6.93 trillion (£48bn), while imports amounted to ¥6.99 trillion.

There were double-digit falls in sales of cars and electronics, two mainstays of Japan's export-dependent economy, amid signs that the credit crunch has spread to China, whose huge market helped fuel Japan's nascent economic recovery after 2002.

"The fall in exports to Asia reflects that their economies are also taking a blow from weakness in developed economies," Takeshi Minami of Norinchukin Research Institute in Tokyo told Reuters.

The parlous state of Japan's exports has forced companies to slash earnings projections, cut production and lay off workers.

Isuzu, a leading maker of trucks, said today it would cut 1,400 temporary and part-time workers, while Toyota, the country's biggest carmaker, said it would reduce output at its passenger car in factory due to weakening sales.

Sharp said it was thinking of cutting production in pivotal products such as flat-screen TVs due to weak demand overseas.

More than half of Japanese companies have cut their profit forecasts over the past two months, according to the Shinko Research Institute.

Shares in Japan's mega banks and electronics makers were among the biggest victims of global recession fears.

Mitsubishi UFJ, which suffered a 61 % decline in second-quarter profit, lost 6.1% to close at ¥480, while Sumitomo Mitsui shed 10.4% to ¥281,500.

Canon fell 7% to ¥2,610, Panasonic by 7.7% to ¥1,350 and Sony by 6.4% to ¥1,826.