World markets tumble on Lehman news
By EMMA VANDORE 09.15.08, 5:23 PM ET

PARIS -

World stock markets turned sharply lower Monday after being hit by a double-fisted blow from Wall Street - news that Lehman Brothers had filed for bankruptcy and Merrill Lynch would be sold to Bank of America.

In Europe, the FTSE-100 share index closed down 3.9 percent in London, the Paris CAC-40 was off 3.8 percent and Germany's DAX 30 index of blue chips sagged 2.7 percent.

In the U.S., the Dow Jones industrial average fell 504.48 points, or 4.42 percent - its largest point drop since the Sept. 11 attacks - in New York trading.

Broader stock indicators also fell. The Standard & Poor's 500 index declined 59.00, or 4.71 percent, to 1,192.70, and the Nasdaq composite index fell 81.36, or 3.60 percent, to 2,179.91.

In Russia, where stocks were already suffering from falling oil prices and worries about political interference in business, the MICEX index was down 6.2 percent and RTS index was 4.8 percent lower.

The falls were led by insurance and financial stocks, with shares in French insurer AXA SA down 8.5 percent, Germany's Commerzbank AG falling 9 percent, and Britain's HBOS 17.55 percent lower.

"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."

Bond prices surged as investors fled to the security of government debt. The yield on the benchmark 10-year Treasury note, which moves opposite its price, plunged to 3.54 percent from 3.72 percent late Friday. The dollar was lower against other major currencies, while gold prices rose.

Europe's major central banks moved quickly to calm markets Monday, pumping billions of euros and pounds into the financial system. The European Central Bank loaned euro30 billion but said it received 51 bids for euro90.3 billion (US$127 billion) on its one-day tender with a bid rate of 4.25 percent - a clear sign that demand for cash is over the top.

Similarly, the Bank of England offered up 5 billion pounds (nearly US$9 billion, euro6.4 billion) in a three-day auction - but bids were nearly five times higher, at 24.1 billion pounds. (euro30.4 billion; US$43 billion)

The 158-year-old Lehman Brothers Holdings Inc. filed Monday for Chapter 11 bankruptcy. The company was crippled by US$60 billion (euro43 billion) in soured real-estate holdings and unable to find an investment partner to throw it a lifeline.

Officials from the government and various banks failed to find a solution during weekend meetings. During the talks, when Bank of America balked at buying Lehman, the government urged it to buy investment bank Merrill Lynch instead.

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