New York: World stock markets fell sharply on Friday, as concerns of more fallout from the sub-prime mortgage crisis and signs of a slowdown in consumer spending stoked investor fears of a US recession.
Meanwhile, US government bonds rose on the concerns about the economy and increasing expectations of a steep interest rate cut by the Federal Reserve later this month. Recession worries also sent the price of oil lower, while spot gold prices surged to a record high just shy of $900 an ounce amid rate cut expectations.
Mounting credit card defaults at US companies, such as American Express Co, dragged down shares of consumer-oriented companies across the board, from fast-food chain McDonald's Corp to luxury jeweler Tiffany & Co. Also on Friday, a New York Times report that Merrill Lynch, the world's biggest brokerage, is expected to suffer $15 billion in losses compounded concerns that more credit crisis fallout may lie ahead.
"The markets right now are very much in recession mentality," said Fred Dickson, director of retail research at D.A. Davidson & Co in Lake Oswego. "Consumers were not expected to spend much and they spent even less than that."
The Dow Jones industrial average ended down 246.79 points, or 1.92 percent, at 12,606.30. The Standard & Poor's 500 Index was down 19.28 points, or 1.36 percent, at 1,401.05.
The Nasdaq Composite Index was down 48.58 points, or 1.95 percent, at 2,439.94. The yen rose broadly on Friday as renewed fears of further subprime mortgage-related writedowns in the U.S. financial sector eroded investors' appetite for risk. Low-yielding currencies tend to attract investors during periods of uncertainty as low interest rates reflect the capital surplus in their respective countries.
In late afternoon trading, the dollar was down 0.4 percent against the yen to 108.88 yen. The euro also dropped versus the yen to 161.15, down about 0.5 percent. European stocks ended lower after briefly touching their lowest level in over a year as concerns the U.S. sub-prime crisis may be far from over dampened the mood among investors.
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