Markets in tailspin

NEW YORK (Reuters) - Wall Street joined a global stock market rout on Friday that kicked off in Japan, led Russia to suspend trading and sent oil and other commodities tumbling on fears of a deep worldwide recession.

U.S. stock indexes fell 5 percent in early trade.

News that Britain's economy contracted in the third quarter deepened fears of a worldwide recession, born of the worst financial crisis in 80 years.

Foreign exchange markets saw extreme volatility with the yen rocketing to multiyear highs against the dollar and euro. The euro/yen rate fell 10 percent at one point.

Britain's economy shrank 0.5 percent in the third quarter and euro zone figures showed the 15-nation currency bloc was already in recession, analysts said.

Stock markets were in freefall around the world as panicked investors moved to liquidate risky positions. Japan's Nikkei index ended down 9.6 percent and European shares dropped 8 percent.

The Dow Jones Industrial Average lost 4.7 percent while the S&P 500 shed 4.7 percent and the Nasdaq plummeted 5.1 percent in early trade.

Russia suspended trading on its stock market until at least Tuesday after the market lost more than a tenth of its value on Friday, hitting its lowest levels since late 2004.

"The global financial crisis has been constantly spreading and worsening, creating a severe shock to global economic growth," Chinese Premier Wen Jiabao told an Asia-Europe Meeting of 27 EU member states and 16 Asian nations.

OPEC, meeting in emergency session, agreed to cut oil output by 1.5 million barrels per day in an attempt to halt the steep slide in the price of oil. But the price of U.S. crude fell more than 5 percent to $64 as economic gloom overshadowed the cut.

Commodities from copper to zinc, sugar and coffee were battered by sharp selling -- bad news for emerging market economies that are major commodity producers and depend on exports for much of their revenue.

The price of U.S. government bonds rose sharply as investors switched out of stocks.

MORE BAD NEWS FROM COMPANIES

Bank of England Deputy Governor Charles Bean said Britain's economy was still in the early days of weakness as a result of possibly the worst financial crisis in history.

"This is a once in a lifetime crisis, and possibly the largest financial crisis of its kind in human history," Bean told the Scarborough Evening News.

A survey of companies showed the euro zone private sector economy on track for its worst performance since the recession of the early 1990s.

The October Markit Eurozone Flash Purchasing Managers' Indexes show services business contracting at its fastest pace since after the September 11, 2001 attacks. Factory output was shrinking at the greatest rate in at least a decade.

"This is it, we are clearly into recession," said Gilles Moec, economist at Bank of America.

A range of corporate giants reeled too, not just the banks that were hit first and hardest by a financial crisis that began with a U.S. housing market collapse.

Sony's shares plunged to a 13-year low after it halved its profit forecast.

French carmaker PSA Peugeot Citroen cut its full-year operating margin target and said it planned to make "massive" production cuts in the fourth quarter after posting a 5.2 percent fall in third quarter sales.

Air France-KLM also succumbed to the financial crisis with a profit warning, sending shares in Europe's largest airline group down about 7 percent.

U.S. bank PNC Financial Services Group Inc said it agreed to buy National City Corp in a $5.6 billion transaction, in a deal that would save the ailing Cleveland-based bank.

GOVERNMENT ACTION

Authorities around the world have committed nearly $4 trillion to a variety of plans including deposit and debt guarantees and taking stakes in struggling banks.

Foreign exchange analysts say major central banks urgently need to calm wild swings in major exchange rates, the latest manifestation of the deepening global financial crisis and one that has sent the U.S. dollar and Japanese yen soaring against European and emerging market currencies.

In Washington, the Treasury Department and bank regulators plan to announce as soon as this weekend the next batch of banks to receive capital injections as part of its bank bailout package, a source familiar with the Treasury's thinking said.

European leaders want China, the world's fastest-growing major economy, to help shape global financial reforms.

"There was large agreement that such answers must be found internationally," German Chancellor Angela Merkel said after talks with Chinese President Hu Jintao in Beijing. "I think China will make its contribution to the stabilization of the world economy."

Hu said the outlook was "grim and complicated."

Leaders of the world's major industrial nations and other big economies will discuss the crisis at a special summit on November 15 in the United States. Chinese spokesman Liu Jianchao said his government was actively considering attending.

IMF PACKAGE

The International Monetary Fund is hurrying to approve by early November a package allowing certain emerging economies exchange their currencies for U.S. dollars to ease short-term credit strains, officials familiar with the plans said.

So far, Hungary, Iceland, Belarus, Ukraine and Serbia are in talks with the IMF on programs backed by financing.

Interbank lending, frozen recently as banks feared peers might collapse, has shown some signs of thawing.

In London, interbank rates for overnight dollar deposits were indicated in a range of 0.95-1.25 percent, but the cost of borrowing longer-dated dollars rose as banks remained wary of lending to each other for durations extending into next year.

Markets expect the Federal Reserve to cut U.S. rates sharply next week to help head off a sharp recession. To that end, investors will scrutinize U.S. home sales data due later.

(Reporting by Reuters bureaus worldwide; editing by Steve Orlofsky)