World stocks drop as U.S. auto bailout rejected

BANGKOK, Thailand -- World stock markets plunged Friday as the U.S. Senate's rejection of a $14 billion deal to rescue Detroit's ailing automakers stoked concerns that the recession in the world's largest economy will be even longer and deeper than projected.

The FTSE 100 of leading British shares was down 127.87 points, or 2.9%, at 4,260.82, while Germany's DAX fell 185.22 points, or 3.9%, to 4,581.98. The CAC-40 in France fell 130.48 points, or 4.0%, to 3,175.65.

Earlier, Asian markets tumbled, with Japan's Nikkei 225 stock average down 484.68 points, or 5.6%, to 8,235.87. Hong Kong's Hang Seng index slid 5.5% to 14,758.39.

U.S. stock index futures pointed to a big sell-off later on Wall Street. The Dow Jones industrial average was projected to drop 259 points, or 3.0%, to 8,311, while the broader Standard & Poor's 500 index was forecast to fall 32.90 points, or 3.8%, to 841.60.

Investors were rattled after the bailout for Detroit's struggling Big Three automakers failed in the U.S. Senate. The collapse came after bipartisan talks on the auto rescue broke down over Republican demands that the United Auto Workers union agree to steep wage cuts by 2009 to bring their pay into line with U.S. plants of Japanese carmakers.

The bankruptcy of any of the big American automakers would deal another blow to the world's largest economy, already in recession.

"For anyone looking for a quiet end to the year, forget about it," said Mitul Kotecha, an analyst at Calyon Credit Agricole.

Hopes for the U.S. auto industry now appear to rest with President George W. Bush agreeing to tap the $700 billion Wall Street bailout fund, or TARP, to aid the carmakers. General Motors Corp. and Chrysler LLC have said they could be weeks from collapse. Ford Motor Co. says it does not need federal help now, but its survival is far from certain.

"This will likely keep markets on edge over the coming weeks...unless it is evident that TARP funds will be used," said Kotecha.

It's not just stock markets suffering in the wake of the failure of the Senate to pass the rescue deal. The dollar slumped overnight too, particularly against the yen.