WB warns of financial crisis' effects

Even the 50-billion-euro (68-billion-dollar) bailout of German bank Hypo Real Estate (HRE) and takeover of Dutch-Belgian bank Fortis by French giant BNP Paribas did little to ease turmoil.

“There is all-out panic,” said Adrian van Tiggelen, ING senior strategist in The Hague.

New York’s Dow Jones index skidded below 10,000 points for the first time since October 2004 as it quickly lost five per cent after the open.

London and Paris nosedived by more than eight per cent and Tokyo closed at a new four year low.

“The markets are extremely volatile,” said Laurent Saint Aubin, the veteran Paris-based head of the Aurel brokerage’s traders. “Flutuations like this within a single day, that’s pretty rare,” he added in front of a screen of red.

In a round-the-world rout, Russia’s RTS stock market closed down 19.10 per cent, Indonesian shares fell 10 per cent and trading in Brazil’s stock market - Latin America’s biggest - was twice suspended after massive losses.

Doubts over the effectiveness of the 700 billion dollar US rescue package and the European measures all hit confidence, analysts said.

After a summit of the EU’s big four leaders in Paris at the weekend failed to bring about a significant breakthrough, member states’ leaders issued a joint statement on Monday vowing to defend banks.

The declaration said governments would defend financial stability by providing “liquidity support through central banks, action to deal with individual banks or enhanced depositor protection schemes.”

“While no depositors in our countries’ banks have lost any money, we will continue to take the necessary measures to protect both the system and individual depositors,” it added.

“In taking these measures, European leaders acknowledge the need for close coordination and cooperation,” according to the text, which French President Nicolas Sarkozy read out on the steps of his office in Paris.

However European governments appeared divided on whether guaranteeing all deposits was the best way to safeguard confidence, and the EU commission called on member states for better coordination.

Denmark, Portugal and Iceland guaranteed deposits, emulating Germany on Sunday and Ireland and Greece last week, adding pressure on other European governments to follow suit.

The German finance ministry said the value of its guarantee was “significantly more than one trillion euros.”

British Prime Minister Gordon Brown called a meeting of his “economic war cabinet”. Finance minister Alistair Darling said the government would consider extending insurance guarantees.

Amid the turbulence, the euro fell to a 13-month low of 1.3551 dollars. Oil prices slipped below 90 dollars a barrel amid fears of a global downturn.