Extreme volatility continues to plague world stock markets as a flurry of warnings late last night about the health of Latin American economies sent markets lower.
A reduction of Brazil's foreign currency debt rating by Moody's Investor Service rekindled fears the global financial crisis was poised to sweep through Latin America. Venezuela also came under severe pressure as Standard & Poor's cited the country's currency, the bolivar, as "extremely overvalued", making a devaluation likely.
The rating agencies' warnings came a day after Colombia surprised markets by effectively devaluing its currency, the peso.
While economists had previously expressed concern about Latin America's - and in particular Venezuela's - ability to weather the crisis, the moves deflated sentiment in equity markets and provided yet another impetus to divert funds into the perceived safety of US Treasuries.
Venezuela's stock index tumbled 7.5 per cent. In Brazil, stocks fell 8.6 per cent to a two-year low, while Argentine shares slumped 5.9 per cent. "Whoever had any doubt that the situation was terrible doesn't any more," said a trader at a Sao Paulo brokerage.
In a roller-coaster ride, US stocks ended sharply lower, buffeted in late trading by the flurry of news from Latin America. The Dow Jones industrial average fell 100.15 points to 7,682.22, 1.3 per cent lower.
Markets in Asia and Europe fell sharply in early trading yesterday after Wall Street's inability to hold on to its gains on Wednesday and fell further after the New York market opened almost 2 per cent lower yesterday.
European share prices suffered fresh losses in early trading, dragged down by the Wall Street yo-yo, as traders continued to fear a collapse of emerging markets as a result of the Russian crisis. The worst affected European market was Frankfurt - the most exposed to the Russian crisis - which fell almost 4 per cent in the morning session before rebounding in later trading after Wall Street clawed back some of its opening losses.
At the close in Frankfurt, the DAX index was down 3.2 per cent, while the French stock market was over 2 per cent lower.
In London, the FTSE 100 index of leading shares fell by 1.5 per cent in late morning trade and extended its losses after the Wall Street opening to close down over 2 per cent on the day.
For a change, the Irish stock market, which has consistently fallen further than the major markets when share prices were on the slide, outperformed the major markets with the ISEQ down 1.8 per cent on the day.
Most of the leaders in Dublin closed sharply lower on the day, but there is a growing belief that sustained weakness in Irish share prices will see a number of Irish companies buy back shares at the lower levels. Fruit group Fyffes bought back shares in the market yesterday, and analysts believe other groups like Independent Newspapers and Greencore may do likewise.
Far Eastern stocks did little to cheer European investors, with an already depressed Hang Seng index in Hong Kong closing down 37 points at 7318. Since the start of the year, Hong Kong stocks have fallen over 31 per cent, the worst performance among major share markets.
In Japan, the main Nikkei stock index fell 0.8 per cent, pulled down by more gloomy corporate news. Electronics giant Hitachi issued an earnings warning and Toa Steel said it was headed toward liquidation in what would be the biggest failure of a Japanese manufacturer since the second World War. Russia's ghostly stock market slid to an all-time closing low as the country's political stalemate compounded seemingly endless economic woe. The rouble's free-fall failed to halt with no floor in sight for the currency.
