Recession fears hit Wall Street

Wall Street shares have fallen steeply for the second day in a row, amid investors' growing fears of a protracted economic downturn.

The Dow Jones average tumbled 5.5% after politicians said they could not agree on an immediate $25bn bail-out for the troubled US carmakers.

Concerns over a sharp slowdown in US factory activity also added to worries about the strength of the economy.

Earlier, European markets all closed sharply lower on recession worries.

US carmakers Ford, General Motors and Chrysler have now been told to come up with their own viable recovery plan by 2 December if they want a $25bn (£17bn) government rescue.

Democratic House Speaker Nancy Pelosi said that without such a plan there would be no bail-out.

She said there was currently no plan in circulation that could pass both Houses of Congress and win President George W Bush's approval.

Unemployment claims

At the close the Dow was down 449.99 at 7,552.29. The Nasdaq was down 5%, or 70 points, at 1,316.12.

Adding to the gloom, a business survey from the Philadelphia Federal Reserve showed that factory activity covering the key areas of eastern Pennsylvania, southern New Jersey and Delaware fell by more than forecast in November.

The index, which is seen as a key gauge of the future state of US manufacturing, slipped to minus 39.3 from minus 37.5 in October.

And new claims for unemployment benefits leapt last week to their highest in 16 years, according to the US labour department.

"The unemployment data was yet another ugly data point in a seemingly never-ending stream of poor economic numbers," said Michael Wittner, global head of oil research at Societe Generale.

The White House indicated on Thursday that Mr Bush would approve legislation to increase unemployment benefits.

Meanwhile, shares in Citigroup tumbled to their lowest level in more than 15 years, despite news that Saudi Prince Alwaleed bin Talal, a long-time investor in the bank, was increasing his stake from less than 4% to 5%.

Mounting problems

The deepening global recession is being felt in a number of ways:

• Mining shares have been hit hard on fears that demand for steel and other raw materials will drop as the economy slows. Steel giant Arcelor-Mittal lost 8% and Vedanta Resources lost 8.5%
• Oil shares were among the main fallers with BP, Royal Dutch Shell and Total all at least 5% lower as sweet crude oil fell below $50 a barrel
• Japan's exports to Asia dropped in October for the first time in six years
• Job losses are mounting worldwide, with aerospace firm Rolls Royce, pharmaceutical giant AstraZeneca and French carmaker Peugeot Citroen announcing a total of 6,100 cuts
• China has warned its employment outlook is "grim", amid worries that economic problems could lead to social unrest
• Switzerland has cut its key interest rate to 1% in a surprise move
• The IMF has approved a $2.1bn (£1.4bn) loan for Iceland. Turkey is set to agree to a precautionary stand-by deal with the IMF soon
• Retail sales fell and public sector borrowing rose in the UK.

In Europe, the London, Paris and Frankfurt markets were all down by more than 3%.

In Asia on Thursday, Japan's Nikkei index ended 6.8% lower and Hong Kong's main index fell more than 4%.