Fading optimism about the U.S. economy has pummeled North American stock markets, and Asian markets suffered a dramatic drop at the start of early Thursday morning trading.
The benchmark Nikkei 225 stock average -- Japan's key stock index -- fell 986 points as Asian markets opened. That's a drop of more than 10 per cent.
On Wednesday in Toronto, the S&P/TSX composite index tumbled 631.81 points or 6.35 per cent to 9,323.85 after gaining more than 890 points Tuesday.
The Canadian dollar dropped 1.91 cents to finish the day at US $84.16 and oil dipped below US $75 a barrel - its lowest level in 14 monhts.
Meanwhile, New York's Dow Jones industrials fell 773 points to 8,577 -- its second-worst day ever. On Tuesday, the Dow closed down 77 points.
New York's NASDAQ composite index dropped 150.68 points to 1,628.33, adding to a 65-point loss Tuesday.
The downturn follows retail sales statistics from the U.S. Commerce Department showing a decrease last month of 1.2 per cent -- almost double the 0.7 per cent drop that was predicted.
The weakness was led by auto sales, which dropped by 3.8 per cent.
Meanwhile, less Canadian homes were sold in the third quarter, however those numbers were partially due to a drop in the number of homes put up for sale, the Canadian Real Estate Association reported.
Still, with 76,391 homes sold in big Canadian markets over the summer months, the numbers were down 10.7 per cent over last year's.
"This weakening reflects a number of factors including tight credit, high energy prices and some payback from the temporary boost provided by the tax rebate cheques," RBC economist Paul Ferley said Wednesday.
"Of the three, the first factor poses the greatest continuing risk to the economy."
BNN's Michael Hainsworth said the bad news doesn't bode well for this year's holiday season.
"At this point, it's going to be the worst in 18 years," he said, referring to efforts by big U.S. retailers like Wal-Mart to get into the Christmas shopping season early.
Still, Kane said that according to one of the country's biggest think tanks, Canada is not bound for a recession.
"They figure in 2009 our economy will grow 0.8 per cent -- certainly not the kind of growth rate we've seen in past years - and employment will remain at least relatively strong," he said, quoting numbers from The Conference Board of Canada.
Overseas, stock markets also fell Wednesday amid profit taking and ongoing concerns that a deep recession is looming.
The FTSE 100 fell 309.64 points or seven per cent to 4,084.57 in London, while Germany's DAX lost 6.7 per cent and France's CAC-40 was down 6.8 per cent.
In Asia on Wednesday, Hong Kong's Hang Seng Index lost 834.58 points, or nearly five per cent, to close at 15,998.30. The index rose more than 13 per cent the previous two days.
Markets in Australia, South Korea, China, India and Singapore also sank.
"It's going to be a slow regaining of confidence," said Ian Namamoto, director of research at MacDougall, MacDougall and MacTier.
"It's very quick to lose confidence, which basically happened during the month of September. But the climb back to gain confidence will take several months."
Japan's Nikkei 225 index did manage to post gains Wednesday, ending up 1.1 per cent at 9,547.47. On Tuesday, the benchmark soared 14 per cent, marking its biggest single-day gain ever.
Governments address crisis
Despite aggressive government action, Federal Reserve Chairman Ben Bernanke warned Wednesday that a full recovery will take time, even as financial markets stabilize.
"Stabilization of the financial markets is a critical first step, but even if they stabilize as we hope they will, broader economic recovery will not happen right away," Bernanke said while speaking to the Economic Club of New York.
Bernanke added that the historic, $700 billion bailout has given the government the kind of leverage needed to ensure long-term health.
"We now have the tools we need to respond with the necessary force to these challenges," Bernanke said,
"I am not suggesting the way forward will be easy."
Meanwhile, leaders of the G8 announced Wednesday that they will meet "in the near future" to discuss the recent market volatility and the credit crisis in the world's banking sector. Britain's Gordon Brown said the meeting could be held as soon as November and may include emerging nations such as China and India.
The announcement came on the same day as the European Union opened a summit to deal with the economic crisis. EU leaders are discussing a plan to shore up the banking sector. Britain and 15 countries that use the euro backed the plan over the weekend.
Also on Wednesday, U.S. Treasury Secretary Henry Paulson said a US$250-billion government plan to directly buy shares in leading U.S. banks should help stabilized the financial system and loosen the tight credit market.
Paulson said he expects the U.S. economy will improve. However, he cautioned there will be "a bump in the road" along the way.
Bush echoed similar sentiments when he met with his cabinet to discuss the crisis on Wednesday morning. Federal Reserve Chairman Ben Bernanke also called for patience.
"Stabilization of the financial markets is a critical first step, but even if they stabilize as we hope they will, broader economic recovery will not happen right away," Bernanke said in a speech to the Economic Club of New York.
