Fears that the latest aviation disaster in the United States might have been a case of terrorism rather than a tragic accident produced sharp losses on stock markets as investors once again looked for the traditional safe havens of bonds, gold and Swiss francs and dumped equities and the US dollar.

Stock markets recovered from the depths they hit in the immediate aftermath of the crash but dealers said that, until it was made absolutely clear that the crash in a residential area of the New York borough of Queens was an accident, markets would remain nervous and investors would be reluctant to return.

While losses on stock markets were broad-based, airline and insurance stocks suffered the most from renewed fears of terrorist attacks. British Airways fell by more than 12 per cent in the immediate aftermath of the Queens disaster but recovered to close 6 per cent lower as initial indications indicated that the crash might have been an accident. Lufthansa fell almost 10 per cent and Air France fell 6 per cent before both recovered ground in later trading to close 5 per cent lower. The world's largest reinsurance group, Munich Re fell 2.9 per cent and insurer Allianz lost 3.8 per cent on the news .

Even low-cost airport Ryanair fell more than 7 per cent immediately after the crash was announced. Ryanair, which has more than regained its losses after the September 11th attacks, eventually closed down just 3 per cent. US stock markets - which had recouped nearly all their losses from the attacks on the World Trade Centre and the Pentagon - tumbled immediately after news of the crash broke. Airline stocks, not surprisingly, took a hammering and both Continental and UAL - parent of United Airlines - fell 10 per cent, while Delta was down 11.5 per cent in the opening session. AMR Corp, the parent of American Airlines tumbled more than 20 per cent as news of the crash broke, before recovering somewhat.

"It shows you how fragile the recovery we've seen over the last month really is. This is going to be very much a knee-jerk reaction," analyst Mr David Thwaites of BNP Paribas said. "It will be all the usual culprits - airlines and insurers leading the markets down," he added

But after falling more than 2 per cent at the opening, the Dow Jones and the Nasdaq Composite Index regained most of the lost ground by midday. The Dow closed down 53.29 on 9,554.71, while the Nasdaq closed up 11.65 on 1,840.13. ...

On European markets, the main individual indices were down between 1.5 and 3 per cent with the FTSE-100 Index down 1.9 per cent at the close. The main euro-zone indices were lower, with the FTSE Eurotop 300 down 1.5 per cent after an early 3 per cent tumble.

American bond markets were were closed yesterday for Veterans' Day holiday but European government bond and short-term interest rate futures jumped sharply.

"The big question for everybody is whether this is terrorism or not," said Mr Jim O'Sullivan, senior economist at UBS Warburg. "If it is, then it sets the recovery process back because whatever return to normalcy was coming into place is just going to be set back by terrorism. Certainly if it is judged to be terrorism, clearly it's going to be a negative for the economy and the stock market. That's only going to give us a flight to quality to the bond market again."

On currency markets, the dollar fell sharply against major currencies before recovering some of its losses. Investors dumped the US currency and snapped up the safe-haven Swiss franc. The dollar fell to one-month lows against the yen and tumbled nearly a full cent against the euro. "The plane crash has raised concerns about terrorism again in a manner that has been clearly detrimental to the dollar, " said Mr Lynch, currency strategist at BNP.