Fear routs world stocks; French, German indexes fall 7%

LONDON -- Stock markets across Europe and Asia plunged Monday on fears that President Bush's emergency economic stimulus plan won't ward off recession in the USA.

At one point during the day, stock indexes in London, Germany and France faced their biggest drops since the Sept. 11, 2001 terror attacks on the World Trade Center in New York.

Monday's sell-off, which started in Asia and spread to Europe, followed the worst week for U.S. stock markets in five years, as investors registered their forecast for the world's biggest economy.

U.S. financial markets were closed Monday for the Martin Luther King Jr. holiday, but U.S. stock index futures were down sharply, suggesting investors don't have much hope of Wall Street leading a rebound when it returns to business Tuesday.

"I think people were underwhelmed by the (U.S. stimulus) package," said Tim Bond, head of asset allocations globally for Barclays Capital in London.

Bush and Congress have yet to work out details, but the size of the $140 billion plan, although larger than some expected, wasn't enough to convince investors that economic conditions in the USA would not deepen and spread around the globe.

Dominique Strauss-Kahn, the head of the International Monetary Fund, called the global economic situation "serious" on Monday, adding "all the countries in the world are suffering from a slowdown in growth in the Unites States."

Bond said Monday's drop in stock prices represented an accumulation of bad economic news that began in June with the subprime mortgage lending crisis. That has led to tighter credit globally and billions in losses at major banks.

The latest write-downs and losses announced in the past two weeks may have pushed investors over the edge, Bond said.

"What investors have been doing is hoping against hope," he said. "And if you were hoping against hope we could get through this, this was the last straw."

Jan Randolph, who heads sovereign risk for the analyst firm Global Insight in London, agreed.

"It's just a realization that the economic outlook is getting darker," Randolph said. "It is going to be a lot more gloomy than realized."

He said Global Insight has increased its assessment of the likelihood that the U.S. economy will slide into recession to a 50% chance.