European markets tumble after Asian slide

European markets tumbled in early trading Wednesday amid ongoing fears about the state of credit markets despite the British government's 50 billion pound ($87.5 billion) rescue package for the banking system. In Asia, Japan's Nikkei suffered its worst day since the 1987 stock market crash.

Banking stocks were among the biggest fallers across European markets, with Credit Suisse AG, BNP Paribas SA and Societe Generale some of the worst hit. However, British banks have fared slightly better after the British government's announcement that it stands ready to take stakes in British banks and give them fresh capital.

By mid-morning London time, the CAC-40 index in France was 229.33 points, or 6.1 percent, lower at 3,502.89, while Germany's DAX was down 323.99, or 6.1 percent, at 5,002.64. The FTSE 100 index of leading British shares was 237.22, or 5.2 percent lower, at 4,367.50.

The selling tide was so huge that the Paris stock exchange briefly suspended calculating the benchmark CAC-40 index amid a massive influx of sell orders that caused it to plummet nearly 8.2 percent at one stage. Orders passed a threshold of 35 percent of the total market value of the 40 blue-chip stocks that make up the index, triggering an automatic halt in the calculation under exchange rules, exchange spokeswoman Frederique Vigezzi said.

And Moscow's MICEX stock exchange, where most of Russia's trading takes place, announced it is shutting until Friday after opening with steep losses. The MICEX index dropped more than 14 percent in the first half-hour of trading Wednesday.

The RTS exchange, whose index is widely considered the benchmark of Russia's markets, fell more than 11 percent in the first 30 minutes and suspended trading until further notice.

"We've got a financial market meltdown and an extreme lack of confidence in banks and in markets," said Neil Mackinnon, chief economist at ECU Group.

The British Treasury said it would be investing up to 50 billion pounds ($87.5 billion) in exchange for preference shares in eight of the county's largest banks and building societies, after Tuesday's precipitous collapse in a number of banking stocks, most notably Royal Bank of Scotland PLC and HBOS PLC.

In addition, the Treasury said it will increase banks' access to liquidity by doubling the amount available to banks under the Bank of England's Special Liquidity Scheme to 200 billion pounds (US350 billion). The scheme is designed to facilitate short-term borrowing and help to free up credit markets.

The Treasury also announced that it will also set up a special company to provide up to 250 billion pounds (US437.5 billion) in loan guarantees to banks and building societies. With some details still slightly unclear and the projected British fiscal deficit set to climb well above 6 percent of gross domestic product, the market's reaction to the Treasury plans has been fairly negative, with money market rates broadly unchanged and British stocks chalking up further losses.

"The impact is going to be minimal - as we've seen in the U.S., government intervention isn't freeing up credit markets and at the end of the day that is the key point - if it's difficult for companies and individuals to get hold of credit...it's going to be difficult to stimulate growth and break out of this recessionary mindset," said Matt Buckland, a dealer at CMC Markets.

With market confidence draining away across the global financial system, there is increasing talk that the world's leading central banks will announce coordinated rate reductions this week.

ECU Group's Mackinnon said the Bank of England, which is already tipped to cut interest rates Thursday, may be joined by the U.S. Federal Reserve and the European Central Bank, in the first coordinated reduction since the September 2001 terrorist attacks in the U.S.

"Before the week is out we should see coordinated cuts in interest rates of significant proportions," said Mackinnon.

Overnight anxious investors sent Asian markets sharply lower with Tokyo in free-fall, with the benchmark Nikkei 225 stock average plunging 9.4 percent - its biggest drop in 21 years - to 9,203.32, a five-year low.

"No one knows the bottom of the ongoing financial crisis, and investors were really spooked by growing uncertainty over the global credit crisis," said Kazuhiro Takahashi, general manager at Daiwa Securities SMBC Co. Ltd.

Hong Kong's blue chip Hang Seng index shed 5.2 percent, and India's Sensex sank 4.3 percent. Seoul's Kospi lost 5.8 percent, Taiwan's key index fell 5.8 percent, and Singapore's benchmark tumbled 5.5 percent.

Australia's benchmark S&P/ASX200 closed down 5 percent, wiping out gains Tuesday after the country's central bank cut its key interest rate by a bigger-than-expected 1 percentage point.

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Associated Press writers Tomoko A Hosaka and Shino Yuasa in Tokyo contributed to this report.