Frankfurt - Deepening economic gloom sent shares around the world into a tailspin Thursday with oil prices crashing to a 22-month low on the back of slumping global energy demand and a contracting world economy. With stocks still struggling to find a floor, European shares extended losses clocked up during the day following steep falls across Asia and after another rough opening on Wall Street with the Dow Jones industrials down about 2 per cent.
As the European trading day drew to a close, the pan-European Dow Jones' Stoxx 600 index was down by 3.8 per cent to 2207.84 after dropping by 2.9 per cent in early trading.
The sell off also came in the wake of a bleak prediction from US Federal Reserve chief Ben Bernanke that the world's biggest economy will continue sliding through to the middle of next year amid worries about the risk of deflation as the economic contraction and falling oil prices undercut inflationary pressures.
Oil prices crashed below a 22-month low of under 50 dollars a barrel as a slowing world economy undercuts demand.
Four months ago oil prices were at a record high as they headed towards 150 dollars a barrel. The sharp decline in oil prices in turn placed pressure on oil company shares.
Adding to the gloomy economic picture, data released Thursday showed initial US jobless claims rising to a 16-year-high.
Bernanke's warning about the US economic outlook came in the wake of data showing two of the world's leading economies - the 15-member eurozone and Japan - tipping into recession.
Despite new moves by national governments to launch economic stimulus packages to help their economies limp through the current crisis, dealers said investor sentiment was also hit by ongoing uncertainty about state aid for the embattled car industry.
As a further sign of the gloom engulfing the auto sector Europe's second-biggest carmaker PSA Peugeot-Citroen said it was planning another round of job cuts by trimming its workforce by 2,700 next year.
British engine maker Rolls Royce is to shed up to 2000 jobs worldwide next year.
Thursday's drop in shares brought to an end a brittle calm that had emerged across global bourses in recent weeks after fears about the impact of the US mortgage market crisis reached a climax following the implosion of the leading American investment house Lehman Brothers in September.
By late afternoon, Europe's leading market in London and in Frankfurt had dropped by almost 3 per cent.
Shares in Paris had fallen 3.78 per cent and by 4.56 per cent in Zurich. Europe's benchmark blue-chip Stoxx 50 was down about 3 per cent.
The declines across Europe and the renewed fall on Wall Street followed a downbeat end to trading across leading Asian markets.
While stocks in Tokyo slumped 6.89 per cent, Seoul's market ended the day down 6.52 per cent.
At the same time, shares in Hong Kong fell more than 4 per cent and by 1.7 per cent in Shanghai. Stocks in India were off 3.77 per cent.
