Tokyo share prices tumbled more than four per cent

Tokyo share prices tumbled more than four per cent on another day of selloffs following Wall Street's slide [AFP]
European markets have followed Asian shares downwards as panicked investors continue to dump stocks and push gold to another day of record highs amid US-driven "market turbulence".

London's FTSE 100 index was down more than 3.6 per cent in morning trading on Tuesday, while Frankfurt's DAX slid more than 5.6 per cent and Paris' CAC was down 3.3 per cent.

Major indexes across Asia slumped lower, following a drop of more than six per cent on Wall Street on Monday in the first trading session since the downgrade of the United States' AAA credit rating by Standard & Poor's.

Tokyo recovered ground to close down 1.68 per cent but Hong Kong's Hang Seng finished the session down 5.66 per cent and Seoul lost lost 3.63 percent.

"It's a horrible place to be, dark days are upon us," Chris Weston, a trader with IG Markets, told the AFP news agency.

"How much further to fall is the question people are asking. People are trading on emotions at the moment rather than looking at the rational situation. There's widespread panic."

'Fear territory'

Oil prices tumbled to their lowest in almost a year to near $76 a barrel on expectations that a slowing global economy could reduce demand for fuel. The dollar was lower against the yen and the euro.

The sell-off comes after the Dow Jones industrials fell 634.76 points on Monday, the sixth-worst point decline for the Dow in the last 112 years.

Michael McCarthy, chief strategist at Sydney-based stockbroker CMC Markets, told the Associated Press the market turbulence was due to fears that the struggling US economy was quickly losing momentum.

"We're clearly in fear territory," McCarthy said. "The major driver here seems to be weakness in the US economy. There are fears that it's starting to stall and if that's the case, the whole global growth scenario could fall over."

Gold outpaces platinum

As investors exited stocks for bonds and bullion, gold was trading at $1,732.55 an ounce by midmorning in Asia, the latest in a string of record peaks.

"Markets are now worried about another global recession. Out of Europe, French bond yields have widened on expectation of sovereign debt downgrade because of the country's exposure to peripheral European debt," Natalie Robertson, a commodities strategist at ANZ, told Reuters.

"I think everyone was also looking at the 7 per cent drop in the S&P 500. The market was very concerned over the global economy. Gold is now more expensive than platinum, and the last time this happened was back in December 2008. That's an interesting dynamic."

Fears that political leaders are failing to tackle debt crises in Europe and the United States boosted the Swiss franc, Japanese yen and, ironically, US Treasuries - the asset directly affected by the downgrade.

"Market players are seeking emergency refuge and fleeing to safe assets," a trader at a major Japanese bank in Tokyo told the Reuters news agency. "In the money market, where there is heightened demand
for dollars, dollar lenders are running away."

'Skittish market'

While the US downgrade late on Friday was the most obvious blow to confidence, there are also concerns about China's inflation rate, which analysts fear could curb Beijing's ability to stimulate demand to offset a global slowdown.

China will release inflation data for July later on Tuesday and markets would be reassured by a number that's little changed or lower than the previous month, according to news agencies.

"We're in a skittish market and the market is looking for some sort of circuit break. Chinese data today might potentially do it," Grant Turley, senior currency strategist at ANZ bank in Sydney, told Reuters.