Global Stocks Post Steep Declines

Investors continue to fret about the euro zone’s ability to respond to its debt crisis, after talks between Greece and its foreign creditors were put on hold last week and the head of the European Central Bank, Jean-Claude Trichet, warned Italy to stick to its austerity program.

In afternoon trading, the Euro Stoxx 50 index, a barometer of euro zone blue chips, was down 3.8 percent, while the FTSE 100 index in London dropped 2.4 percent.

Bank shares led the declines. Royal Bank of Scotland gave up more than 10 percent, while Deutsche Bank, BNP Paribas and Société Générale all fell more than 7 percent.

In addition to growing expectations that many financial institutions will need to raise capital — as the head of the International Monetary Fund, Christine Lagarde, suggested last month — banks have also been hit by a lawsuit filed by the U.S. authorities against 17 financial institutions that sold the mortgage giants Fannie Mae and Freddie Mac nearly $200 billion in mortgage-backed securities that later soured.

In Asia, the Hang Seng index in Hong Kong fell almost 3 percent, while the Shanghai composite index dropped almost 2 percent. The Nikkei 225 stock average fell 1.9 percent in Tokyo, while in Sydney the SP/ASX 200 index fell 2.4 percent.

U.S. equity index futures declined, though Wall Street was closed Monday for the Labor Day holiday in the United States. On Friday, the Dow Jones industrial average slid 2.2 percent after an employment report showed the United States economy added no jobs at all in August, renewing worries that the country might be heading for a recession.

The U.S. jobs data suggest that economic growth “will temporarily stall in late 2011, with at least a 40 percent risk of recession,” Holger Schmieding, chief economist at Berenberg Bank in London, wrote in a research note. He predicted the Federal Reserve would announce new measures to speed recovery when its policy board meets Sept. 20-21.

In Tokyo, exporters like Sony, Panasonic and Sharp, which derive a large part of their earnings from sales in the United States and Europe, fell more than 3 percent.

“Financial markets continue to be stressed about the lack of growth drivers in the global economy,” analysts at DBS said in a research report on Monday.

“Against this background, members at the G-7 meeting on Sept. 9-10 will have a challenging task to restore confidence in the ability of the advanced economies to support growth and jobs, as well as to restore financial stability,” the DBS analysts wrote. “Hence, risk appetite is likely to be low in markets as long as the advanced economies are seen on the defensive on the growth front.”

Gold was trading at $1,890 an ounce, up 0.9 percent, having risen sharply Friday. U.S. crude oil futures for October delivery fell 1.9 percent to $84.79 a barrel.

The dollar was mixed against other major currencies. The euro declined to $1.4118 from $1.4205 late Friday in New York, while the British pound fell to $1.6133 from $1.6218. The dollar also gained against its Japanese counterpart, ticking up to 76.85 yen from 76.81 yen. But the U.S. currency slipped to 0.7857 Swiss franc from 0.7884 franc.

Bettina Wassener reported from Hong Kong.

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