US & World News

LONDON (CBS News) ― Turbulence roiled world stock markets again Tuesday, with Asian stocks down for a second day on fears of recession in the US. European stocks fell at the opening but then pared their losses in voaltile trading.

"Some people think there's going to be a deep fall off a cliff" because of a potential recession in the U.S., said Lawrence Peterman, investement director at Eden Financial, a London-based stockbroker. He saw opportunities in British stocks however.

The dramatic declines in Asia and Europe so far this week threatened to spread to Wall Street after the three-day Martin Luther King holiday weekend that saw U.S. markets closed Monday. Early indicators suggested prices on Wall Street would plunge when the markets open there Tuesday.

By midday, the U.K.'s FTSE 100 was down 0.3 percent at 5,560.90, Germany's DAX down 1.7 percent at 6,671.82, while France's CAC 40 dropped 1.3 percent to 4,681.07.

Japan's Nikkei 225 index tumbled 5.7 percent - its biggest percentage drop in nearly 10 years - to 12,573.05, a day after falling 3.9 percent. Australia's benchmark index sank 7.1 percent, its steepest one-day slide in nearly 20 years.

"The Japanese market is probably the second-largest economy in the world but it is tied very closely to the United States," said CBS News correspondent Barry Petersen in Tokyo.

President Bush, meanwhile, was to meet Tuesday with Congressional leaders for further talks on his proposed economic stimulus plan. The gloomy state of the economy was expected to draw a quick agreement between the White House and the Democrat-led legislature.

"The fall of Japanese stocks is really a vote of 'no confidence' twice-over: once, a sense that the plan proposed by President Bush is not going to make any difference soon in the American market, and also a sense that with America slowing down, Japan's going to be in trouble as well," Petersen said.

Hong Kong's Hang Seng index, which slumped 5.5 percent Monday, finished down 8.7 percent. In China, the Shanghai Composite index lost 7.2 percent to 4,559.75, its lowest close since August.

Indian Finance Minister P. Chidambaram urged investors to remain calm after trading in Mumbai was halted for an hour when the stock market there fell 10 percent within minutes of opening. The Sensex rebounded some to close down 5 percent after plunging 7.4 percent Monday.

"There is no reason at all to allow the worries of the Western world to overwhelm us," Chidambaram said.

Investors have dumped shares in frenetic trading the last two days on worries that the U.S. economy, battered by a credit crisis and housing slump, will shrink in coming months, weakening demand for exports.

There is also skepticism that U.S. authorities will be able to prevent a recession. The Federal Reserve has indicated it will lower interest rates further, and President Bush has proposed an economic stimulus package that includes $145 billion in tax cuts, but investors around the world are doubtful that the measures will lift the economy quickly.

"Unless we get some positive 'shock effects,' such as drastic measures from the U.S. government, there is almost no hope for a recovery in stocks," said Koji Takeuchi, senior economist at Mizuho Research Institute in Tokyo.

Oil and gold prices also fell. Light, sweet crude for February delivery fell to $87.72 a barrel on expectations that slower U.S. growth will lead to less demand for crude. Spot gold, which usually benefits from market uncertainty, fell to a two-week low of $855.20 per troy ounce.

In the U.S. stocks are expected to tumble following the long holiday weekend.

"U.S indices are heading for carnage at the open," said Martin Slaney, a trader at U.K. spreadbettor GFT Global Markets.

U.S. markets were closed Monday for a holiday commemorating civil rights leader Martin Luther King Jr. But Wall Street future prices were down sharply. The Dow Jones industrial average futures were down 523 points, or 4.3 percent, while Standard & Poor's 500 futures were down 64.4 points, or 4.8 percent.

Noritsugu Hirakawa, who monitors stock trading at Okasan Securities Co. in Tokyo, said investors were spooked by the drastic falls on Chinese and Indian markets - the two emerging economies that are viewed as sustaining global growth even as the U.S. economy sputters.

"The end to the slides in Asian stocks is nowhere in sight," he said. "There is even speculation that China may be exposed to the U.S. subprime mortgage crisis."

Indonesia's benchmark index closed the day down 7.7 percent, Singapore's Straits Times index sank 6 percent and Taiwan's market fell 6.5 percent.

Asian markets have been in a downward spiral for most of January. Since the start of the year, Japan's Nikkei index has tumbled nearly 18 percent, while the Hang Seng is down a stunning 22 percent.

Even the usually upbeat Japanese Economy Minister Hiroko Ota acknowledged that threats were growing.

"We must take the approach of working together with other nations on this," she said on nationally televised news.

(© 2010 CBS Broadcasting Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press contributed to this report.)