London - World stock markets fell heavily on Monday as recession spread to Japan, overshadowing a weekend summit in Washington that was aimed at calming the economic crisis, analysts said.
European equities plunged more than 1.5% as investors fretted over a global recession that could wreak havoc on companies around the world.
Over the weekend, leaders from the Group of 20 rich and emerging nations pledged to work together to restore global growth and overhaul the world's financial system, but stopped short of specific measures such as coordinated stimulus spending.
Investors gave the meeting a lukewarm response as they on Monday focused on global recession fears after news that Japan's economy shrank for two quarters running - the technical definition of a recession.
"The global economy is in recession," said Royal Bank of Scotland economist Robert Lind in reaction to the Japanese data.
"Continuing frailty in financial markets, much weaker growth and sharply lower inflation could trigger concerns about a protracted slump," he added.
A vague pledge
Despite the gloomy news, Tokyo's stock market closed up 0.71% on Monday as investors hunted for bargains, dealers said.
In European deals, Frankfurt shed 1.47%, Paris lost 1.88% and London fell 1.68% around the half-way stage.
Markets showed little enthusiasm for a vague pledge on Saturday from Group of 20 (G20) leaders to join forces to galvanise growth and overhaul the world's financial architecture, analysts said.
Many market players had been hoping for more specific steps to try to prevent the worst financial crisis in decades pushing the global economy into a long and deep recession.
In Asian stock market trading on Monday, Manila lost 1.9%, Seoul shed 0.9%, Sydney fell 2.5% and Taipei erased 0.29%.
Japan's economy contracted by 0.1% in the third quarter, or three months to September, after shrinking 0.9% in the second quarter as the international banking crisis took its toll, official data showed.
That marked the first Japanese recession in seven years as the chronic financial crisis mauled the country's export-dependent economy.
In the foreign exchange market, the yen strengthened as risk-averse investors sought shelter in what they saw as a safe currency.
Hong Kong share prices closed 0.1% lower, but the fall was capped by the expectation that China may cut interest rates this week, dealers said.
Japan joins Germany and Italy on the list of major economies that are now officially in recession, despite emergency steps by world powers to try to stem months of turmoil on financial markets.
Last week it also emerged that the 15-nation eurozone, of which Germany is the kingpin, entered recession for the first time ever, after shrinking in the second and third quarters of 2008
No German auto bailout
"The global economy has slowed abruptly in recent months," added Lind on Monday.
"As the US banking system came close to collapse in September, problems in the financial sector spread decisively to the real economy. Europe and Asia quickly followed.
"Though a determined policy response appears to have prevented a more disastrous outcome, there will be longer-lasting implications for activity.
"Most of the major economies have slipped into recession and this weakness will persist into 2009."
Major companies around the world continued to feel the pain from a financial crisis that began with a wave of defaults on US subprime, or risky, mortgages and developed into a full-blown credit crunch and global economic slump.
The parent companies of China Eastern Airlines and China Southern Airlines are expected to each get state aid of 3bn yuan to tide them over hard times, state media reported on Monday.
German Chancellor Angela Merkel was due to hold crisis talks with executives at car maker Opel, which has said it needs state guarantees for its bank loans as its US parent company General Motors struggles to stave off bankruptcy.
Gulf stock markets meanwhile showed signs of recovery on Monday after days of bleeding but trading was highly volatile, reflecting low investor confidence and panic from the global financial crisis.
Most of the region's markets rose with Dubai leading the way, spurred by the real estate sector, which rebounded strongly following two months of deep losses.
The Dubai Financial Market (DFM) made a strong comeback, closing 8.15% higher at 2 142.85 points, its first gain after six sessions of huge losses. The DFM Index is still down 64% on the year.
- AFP