Major markets in America, Asia and Europe dropped sharply on Tuesday.
The shake-up on the global markets comes after the fourth largest US investment bank, Lehman Brothers, filed for bankruptcy and Merrill Lynch fled into the arms of Bank of America.
The news sent shock waves across the world's stocks.
Wall Street on Monday dropped sharply with the Dow Jones falling more than 504 points, or 4.4%, to 10 917, which is its steepest point drop since the market reopened following the 11 September 2001 attacks.
In Europe, the FTSE index was down 2.72% in London, the Paris CAC-40 was off 3.52% and Germany's DAX 30 index of blue chips sagged 2.99%.
Meanwhile in Russia, the MICEX index was down 6.2% and RTS index was 4.8% lower.
Japan's benchmark Nikkei 225 stock index plunged 4.8% to 11 632 99, falling under the 12 000-point level for the first time since mid-March.
Chinese Hong Kong's stock index tumbles 6.49% in early trade, while South Korea's Kospi shed 6.2%, and Chinese Taiwan's benchmark was off 4.6%.
But, according to a CNN report, the situation in Australia and New Zealand was not as severe as others, with key indices down 2.4% and 2.7% respectively.
Lehman Brothers, the fourth biggest US investment bank, filed for bankruptcy Monday after two most serious buyers Barcklays and Bank of America (BOA) withdrew from talks to buy the firm.
New York-based Lehman has lost 94% of its market value this year after record losses from investments tied to mortgages.
Meanwhile, Lehman's rival, the third largest US investment bank Merrill Lynch reached a 50-billion-dollar deal to sell itself to BOA under the pressure of regulators.
Shares of Merrill Lynch tumbled more than 35% last week and closed at 17.05 dollars last Friday.
American International Group (AIG), the largest US insurer, is another big financial giant affected by the Lehman.
AIG refused private equity infusion and turned to the Federal Reserve for help.
The New York Federal Reserve held meetings on Monday on the situation AIG with representatives of the Treasury Department, financial services firms and state officials. AIG's shares tumbled nearly 50% in morning trading.
Three of five largest US investment banks failed within six months, including Bear Stearns, Lehman Brothers and Merrill Lynch.
These historic events triggered panic among investors about another series of troubles for banks and financial institutions that may be forced to further write down debt assets.
"In the short term, we are looking at a fresh wave of weakness hitting financial markets," said Chloe Magnier, chief economist at Saxo Bank in Paris. "I'm not optimistic about the coming months."
Lorraine Tan, director at Standard & Poor's equity research in Singapore, suggested the shake-up was needed to restore confidence in the markets.
"A lot of people are getting burned. It's better to get this out of the system. Hopefully for the US this could be it as far as potential failures of investment banks," Tan said.
Article published courtesy of BuaNews
