Global shares dive before Wall Street open

U.S. stocks continued an equities route that began in Asia and later spread to European exchanges a day after U.S. investment giant Lehman Brothers stunned the market with a bankruptcy filing.

The Dow Jones Industrial Average slid 0.54 percent to 10,858.81 in early trade, largely on fears that insurance giant American International Group may be the next credit crunch victim. Shares in AIG plummeted 70 percent at the open.

With nervousness gripping exchanges worldwide, the U.S. Federal Reserve, European Central Bank, Bank of England and Bank of Japan together injected $210 billion into the money markets on Tuesday to boost liquidity.

London and Tokyo tumbled more than four percent on Tuesday, hitting their lowest levels for more than three years after Wall Street had slumped more than four percent overnight.

Russia’s main RTS stock market suspended trading after falling by more than 11 percent, a spokeswoman said, following a move by the number two Micex stock market to do the same.

Stocks in Oslo plunged by more than eight percent in the wake of the global financial crisis and accentuated by a drop in oil prices.

Investors were also awaiting a decision by the Fed later in the day that could see a sharp cut in its benchmark interest rate aimed at calming markets.

"All eyes will be on the Fed to see if they can ease the financial pressures as they announce their rate decision later. Rumors are rife that we could get up to a 75 basis-point cut in interest rates.

"These rumors have snowballed further after lower oil prices eased inflationary pressures," added Griffiths.

Oil prices dropped beneath $90 Tuesday on prospects that the growing economic gloom would further dampen demand for energy, traders said.

On foreign exchange markets, the dollar fell to more than three-month lows against the yen.

London’s FTSE 100 index of leading shares dived 4.12 percent in afternoon deals, recording the first drop under 5,000 points since June 9, 2005.

The share price of British bank HBOS, whose Halifax unit is the biggest mortgage lender in Britain, shed more than 35 percent of its value.

The Paris and Frankfurt markets were both down more than three percent while smaller bourses across Europe all suffered badly in the downdraft.

Global stocks extended losses Tuesday amid fears of contagion from Lehman, already believed to be pressuring American International Group, one of the world’s biggest insurance firms.

Rating agencies Standard & Poor’s, Moody’s and Fitch all lowered AIG’s credit ratings and the Wall Street Journal reported Tuesday that the company may have to file for bankruptcy if it cannot secure sufficient fresh funding by Wednesday.

Investors were faced with an array of bad news that went well beyond the fall of Lehman, a 158-year-old institution that had survived the market crash of 1929 that heralded the Great Depression.

"Lurking close to the surface are mounting pressures on institutions and on any number of investors as the dominoes start to tumble," said Patrick Bennett, an analyst at Societe Generale.

Across Asia on Tuesday, officials called emergency meetings as trading screens went red on the heels of the biggest one-day point loss for Wall Streets Dow Jones index since the September 11 terror attacks.

Japanese shares dropped almost five percent and Hong Kong shed 5.4 percent.

Seoul shares closed 6.1 percent lower while the South Korean currency, the won, fell 4.3 percent against the dollar, its biggest daily drop in a decade.

As markets tumbled, officials appealed for calm -- trying to avert a panic after months of market turmoil set off by worries over snowballing defaults on US subprime, or high-risk, housing loans.

U.S. Treasury Secretary Henry Paulson vowed on Monday to ensure "stability and orderliness" at home and overseas.

Earlier this month Paulson arranged U.S. government guarantees for U.S. mortgage finance giants Freddie Mac and Fannie Mae, and on Monday he reiterated that the U.S. housing mess was "the root" of the current troubles.