European markets drop after Nikkei slump

Though the rescue packages have helped alleviate the pressures on the banking system, they will do nothing to prevent a serious economic slowdown. Fed Chairman Ben Bernanke warned in a speech Wednesday that patching up the credit markets won't provide an instantaneous jolt to the economy.

"Everyone is very worried about the economy in the U.S and around the world," said Jacky Choi, a Hong Kong-based fund manager at Value Partners Ltd., which manages about $5 billion in Asia.

Concerns about the global economic outlook are clear also in the price of oil, which has fallen another $1.88 to $72.66, a new 13-month low.

Commodity stocks are also in retreat after Rio Tinto PLC, one of the world's biggest mining giants, warned of slowing raw material demand from China, the world's biggest growth engine over the last few years. "The Chinese economy is pausing for breath after spectacular GDP growth," the company's chief executive Tom Albanese said.

Meanwhile, insurance policies against companies failing to make good on their debt, known as credit default swaps, were more expensive — a signal that firms believe the risk of default is growing.

The U.S. dollar edged up to 100.43 yen, while the euro rose to $1.3473.

Contributing: wire reports

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