By Claudia Parsons
NEW YORK (Reuters) - Signs of a sharp slowdown in Europe and a barrage of profit warnings and job cut announcements from companies around the world raised fears of a deep global recession to new heights on Friday.
Stocks markets slid from Japan to Moscow, currencies experienced almost unprecedented volatility, and oil and other commodities tumbled on fears of plummeting demand that will accompany a global economic slowdown.
"I would characterize this as a shell-shocked mentality out there," said Thomas di Galoma, head of government bond trading at Jefferies & Co. in New York. "It's all the deleveraging of equities ... It's causing an issue for everyone."
The economic crisis also prompted further U.S. government intervention with officials stepping in to help finance the sale of ailing Cleveland-based National City Corp and preparing to announce 20 more banks will receive capital injections.
Speculation about a bailout of the U.S. auto industry also increased as people familiar with the talks told Reuters that General Motors has intensified negotiations to buy Chrysler's auto operations but that it intends to seek U.S. government aid to support any deal.
Meanwhile, Chrysler said that it was slashing about 5,000 white-collar jobs while industrial conglomerate ITT said it would also cut an unspecified number of positions.
Reports showed the euro zone's private sector economy shrinking at the fastest pace in at least a decade and a much deeper-than-expected contraction in Britain's economy in the third quarter, leading many analysts to declare recession.
Britain's economy shrank 0.5 percent in the third quarter, the government said, and a poll showed that U.K. home prices are expected to slide 15 percent this year and a further 10 percent next year.
China warned the outlook for the world economy was grim.
The pace of existing-home U.S. sales rose in September, but a Reuters poll of economists suggested battered U.S. home prices will fall into next year and a possible recovery in 2010 will be meek at best.
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.
Stock markets were in free fall around the world as panicked investors moved to liquidate risky positions. Japan's Nikkei index ended down 9.6 percent and European shares dropped 5.4 percent.
The Dow and the S&P 500 were down around 4 percent at midday after dropping more than 5 percent at the open.
"There's definitely concern that this could be a recession for the United States, deep and long," Doreen Mogavero, CEO of independent NYSE member firm Mogavero, Lee & Co Inc, said on the New York Stock Exchange trading floor.
Losses were fueled by funds selling to raise cash to meet large-scale redemptions by investors, but some traders said the fall was not as bad as it could have been.
Russia suspended trading on its stock market until at least Tuesday after the market lost more than 13 percent 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 oil prices. But the price of U.S. crude fell 5 percent toward $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 recent thaw in global money markets appeared to be coming to a halt on Friday as concerns over a global slowdown rocked financial markets, brought focus back on counterparty risk and raised expectations of sharp interest rate cuts.
The cost of borrowing overnight dollars rose and sterling overnight rates increased.
ONCE IN A LIFETIME CRISIS
Bank of England Deputy Governor Charles Bean said Britain's economy was still in the early days of weakness.
"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.
"It looks like it is a serious recession rather than just a mild 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. Samsung posted a 44 percent drop in quarterly profit.
French carmaker PSA Peugeot Citroen said it planned "massive" production cuts in the fourth quarter after a 5.2 percent fall in third-quarter sales.
Europe's largest airline group, Air France-KLM, issued a profit warning.
U.S. bank PNC Financial Services Group Inc said it would buy National City Corp in a $5.6 billion government-backed deal.
The U.S. government is expected to shortly announce a list of about 20 banks in the next round of firms receiving capital injections under a $700 billion rescue package, according to a source familiar with the U.S. Treasury Department's thinking.
(Reporting by Reuters bureaus worldwide; Editing by Steve Orlofsky and Brian Moss)
