NEW YORK, Oct 24: US stocks tumbled and European shares had their lowest close in five and a half years on Friday, continuing a global collapse in equities as investors fearing a long and deep worldwide recession cashed out of risky assets.

Rates on major currencies gyrated wildly amid the frenzied stocks rout, sending the dollar and yen to multi-year highs against the euro and sterling as investors brought investments home in search of shelter.

Sterling suffered its biggest one-day drop against the dollar since September 1992 following news that Britain’s economy contracted in the third quarter for the first time in 16 years.

Data also showed the euro zone’s private sector economy shrunk this month at its fastest pace since the monetary union.

“This has become much more global than it was two weeks ago. No one or no market is immune,” said Robert Macintosh, chief economist at Eaton Vance Corp in Boston.

“People are running to safety,” he said. “It is interesting how the dollar has been bashed for years and that is the currency that everybody wants to own.”

Bellwether IBM Inc was a drag on the Dow, but trimmed losses to stand just 2 per cent lower after a fall of about 5 per cent earlier.

Energy companies also tumbled, dragged down by the more than $3 drop in the price of oil.

The Dow Jones industrial average was down 274.78 points, or 3.16 per cent, at 8,416.47. The Standard & Poor’s 500 Index was down 29.09 points, or 3.20 per cent, at 879.02. The Nasdaq Composite Index was down 35.75 points, or 2.23 per cent, at 1,568.16.

Still, the US losses did not quite live up to investors’ worst fears.

News that existing-home sales in the United States rose 5.5 per cent last month --- the biggest gain since July 2003 --- helped put a floor under sentiment since the housing market has been at the centre of the economic troubles.

The Dow Jones home builders index was up 2 per cent, and Pulte Homes Inc was the top gainer on the S&P 500, up 9.3 per cent.

World stocks, measured by MSCI’s all-country world index, were down 4.63 per cent but had trimmed their losses after hitting five-year lows during the session. Investors dumped emerging market stocks with particular vigour, pushing them down 7.42 per cent.

European shares had their lowest close since mid-2003, with the FTSEurofirst 300 index of top European shares closing down 4.93 per cent at 829.73 points.

“I sense we’ve moved beyond the credit crisis. There’s a recognition of the damage inflicted on the global economy, that is the recession, by the credit crisis,” said Mike Lenhoff, strategist at Brewin Dolphin.

“It’s not just limited to the developed world. You can run but you can’t hide anywhere.”

Losses in Europe were led by banks, with HSBC slumping 13.5 per cent on growing fears of a slowdown in emerging markets.

Japan’s Nikkei tumbled almost 10 per cent by the close of trading in Tokyo.

Japan’s huge external surpluses and already rock-bottom interest rates led the yen to outperform, with the dollar/yen exchange rate losing about 7 per cent at one point to a 13-year low of 90.90 yen.

The disorderly nature of the moves fuelled speculation about Group of Seven central bank intervention to stabilise markets.

“The scale of the recent currency moves will most likely rekindle intervention talks,” said Audrey Childe-Freeman, currency strategist at Brown Brothers Harriman in London. “The question here is: have recent moves been excessive? The answer is yes.”

However, the dollar, the victim in markets in recent years, continued to benefit against other currencies from investors repatriating savings back to the US.

The dollar was up against a basket of major trading-partner currencies, with the US Dollar Index up 1.53 per cent at 86.075 from a previous session close of 84.775.

The euro was down 2.30 per cent at $1.2682 from a previous session close of $1.2980. Against the Japanese yen, the dollar was down 3.67 per cent at 94.24 from a previous session close of 97.830.

As is often the case, government bonds were big beneficiaries of the stocks sell-off, but pared their gains after the worst of the stocks rout passed.

The benchmark 10-year US Treasury note US10YT=RR was up 12/32, with the yield at 3.6386 per cent. Euro zone government bond futures also rallied.—Reuters