LONDON, Oct 15: Mounting fears that global financial turmoil will now spark a recession in Europe and the United States rattled investors and sent share prices plunging on Wednesday.

Market analysts said that while extraordinary efforts by governments to shore up shaky banks may have boosted confidence earlier this week, they are now seen as unlikely to head off a US and European recession.

Sentiment on Wednesday was shattered by an unusually bleak report on US retail sales, which represent the bulk of US economic activity, and a key manufacturing index.

Most analysts now say that a US recession appears virtually certain as a crippling credit crunch and housing meltdown drags down the rest of the economy despite the $700 billion rescue plan approved by Congress that will include $250 billion offered to banks to help restore credit flows.

In Brussels, European Union leaders gathering for a summit warned that the financial crisis was far from over and the real cost to jobs and growth was only now becoming clear.

“We are facing a major threat,” said Luxembourg’s Prime Minister Jean-Claude Juncker, chairman of the Eurogroup of finance ministers, as he entered the talks. “We have to be careful in the coming weeks.”

“We are living in unprecedented times and we need an unprecedented level of coordination,” EU Commission president Jose Manuel Barroso told reporters before leaders from the 27 EU member states began a closed-door session.

On Wall Street, the Dow Jones Industrial Average was down 3.37 per cent at 8,997.10 points in midday trade while the tech-heavy Nasdaq had fallen 3.23 per cent to 1,721.55.Fuelling the fall was a Commerce Department report that US retail sales slumped 1.2 per cent in September, the sharpest drop since August 2005 and weaker than market expectations.

“There can be no doubt now that the economy is in recession,” said Ian Shepherdson of High Frequency Economics. “It will be there a while.”

“People have dropped shopping. This happened even before the total meltdown in the stock markets. What is ominous is that the declines in spending were broad-based,” said Joel Naroff at Naroff Economic Advisors.

Meanwhile the New York Fed’s Empire state index of factory activity in the northeastern region crashed to minus 24.6, its weakest reading ever.

In line with Wall Street, leading European stock markets plunged 6.0-7.0 per cent at the close of trade.

The London FTSE 100 index of leading shares shed 7.16 per cent to 4,079.59 points while in Paris the CAC 40 fell 6.82 per cent to 3,381.07 points. The Frankfurt DAX gave up 6.49 per cent at 4,861.63 points.

There were declines of 5.93 per cent in Brussels, 5.06 per cent in Madrid, 5.58 per cent on the Swiss Market Index, 5.33 per cent in Milan and 7.56 per cent in Amsterdam.—AFP