Asian markets have suffered the same battering that drove US and European stocks to their lowest levels in five-and-a-half years yesterday.
Japan's Nikkei tumbled 6.9 per cent, while the MSCI All-Country World Index hit its lowest level since May 2003, dragged down by Asian shares. Benchmark indexes in Hong Kong and South Korea also dropped by about 5 per cent in early trading.
Japan's exports to Asia fell in October for the first time since 2002 in evidence the fallout from the credit crisis has spread to neighbours such as China and adding momentum to investors' flight to the safety of cash.
Capital flight from emerging markets drove the currencies of South Korea and Indonesia to their lowest levels since the Asian financial crisis a decade ago. India's rupee hit a record low.
Shipments to Asia had previously cushioned the impact on Japanese exports of weakening demand from the United States and Europe, but data today showed they fell 4 per cent in October from a year earlier.
The Federal Reserve forecast that the US economy would contract through the first half of next year and signalled it was ready to cut interest rates further, while US consumer prices last month posted their biggest drop on record.
"The fall in exports to Asia reflects that their economies are also taking a blow from weakness in developed economies," said Takeshi Minami, chief economist at Norinchukin Research Institute in Tokyo.
Hopes that Asian economies, particularly China, could help prop up global growth have begun to fade as weaker demand in the United States and Europe has quickly translated into slowing factory output and job cuts.
Underlining the extent of Beijing's concerns over its own slowdown, Minister of Human Resources and Social Security Yin Weimin said today that stabilising employment is now the government's top priority.
The worrisome outlook sent bonds surging. The yield on Japanese 10-year government bond futures fell to as low as 1.430 per cent on Thursday, the lowest since early October, while the US Treasury two-year yield hit a record low at one point.
Financial bookmakers expect worries over a lengthy economic downturn to send the leading European benchmark indexes as much as 2.4 percent in early trade on Thursday.
Corporate news helped fuel the rush to safe havens.
Citigroup shares tumbled 23 per cent yesterday to a 13-year low, as investors questioned the survival prospects of the US banking giant on concerns about mounting losses from credit cards, mortgages and toxic debt.
Chances for a $25 billion bailout of the U.S. auto industry faded further, with little expectation that Democratic leaders in Congress will support a compromise that hinges on negotiations supported by Republicans and the "lame-duck" White House.
Shares in key Asian memory chip makers fell on Thursday, with Hynix dropping nearly 15 per cent, on growing signs that the market slump could be prolonged.
Elsewhere, the International Monetary Fund yesterday approved a $2.1 billion loan for Iceland to try to stabilise what the fund called a "banking crisis of extraordinary proportions".
The fund said Iceland's economy was likely to shrink 9.6 per cent next year and unemployment would quadruple to 5.7 percent.
An intense aversion to risk weighed heavily on some Asian currencies on Thursday.
Fears South Korea's export-dependent economy would be hit hard by the crisis drove the won down more than 4 per cent to its lowest level in almost 11 years. The central bank was suspected of intervening to prop up the currency.
The Indian rupee dropped to a record low in opening trades as investors took fright at another sharp fall in global stock markets.
The Indonesian rupiah also fell to its weakest levels in a decade, with trading volumes virtually drying up as market participants braced for a steep fall in the currency.
"Not a single interbank deal went through yesterday for four to six hours," said a trader in Hong Kong.
Looking to avoid recession, Vietnam cut interest rates on Thursday for the third time in four weeks.
In Europe, ECB executive board member Lorenzo Bini Smaghi said that the ECB could cut its rates further after two such moves in the past few weeks.
Reuters