Global jitters after Lehman collapse

Updated September 16, 2008 08:11:50

US traders on Monday have seen its main market indicators slump to their worst figures for at least six years. [Reuters]

Global stocks have tumbled amid cascading fears about the stability of the financial system after investment bank Lehman Brothers filed for bankruptcy and concerns grew about the viability of American insurer AIG.

In New York, the Dow industrials slumped more than 500 points, or 4.3 per cent, to post their biggest one-day percentage loss since July 2002, while the S&P posted its worst one-day percentage loss since September 2001.

Lehman shares plunged about 95 per cent in composite trade.

Shares in American International Group (AIG) plummeted more than 50 per cent as investors grew increasingly nervous after the insurer, once the world's most valuable insurer by market value, failed to deliver a rescue plan.

In London, investors wiped $US90 billion off the value of Britain's top 100 companies following, in the biggest fall on the stock market since January.

The FT-100 index of leading shares closed down 212 points or 4 per cent, with the banking sector bearing the brunt of panicked selling.

Shares in HBOS, the United Kingdom's biggest mortgage lender, plunged 18 per cent as fears mounted over the state of its balance sheet.

Its rival Barclays, which had been one of the front runners to fund a rescue deal for Lehman Brothers of the US before pulling out, fell 10 per cent.

European shares slid to their lowest close in two months.

Most major Asian markets were closed for a holiday.

The US Federal Reserve has broadened its emergency lending scheme and the United Kingdom and European central banks have injected about $48 billion into the financial system.

US Treasury Secretary Henry Paulson has made an urgent address at the White House in which he has assured the US that he is committed to working through the current economic turmoil.

"We are working through a difficult period in a financial market right now," he said.

"The American people can remain confident in our financial system.

"The strength and stability of our financial markets is important to every American."

Mr Paulson has moved to assure the American people that they can remain confident in the US financial markets.

"The housing correction is at the root of the challenges facing our markets and institutions," he said.

"I'm committed to working with regulators here and abroad and policy makers in congress to take additional steps to manage our markets.

"Nothing is more important right now than the stability of our capital markets."

Mr Paulson says reform is needed to in the US financial system and tax-payers' money will not be used to bail Lehman Brothers out.

President George W Bush has acknowledged that it's an unsettling time.

"I know Americans are concerned about the adjustments that are taking place in our financial markets.

"The White House and throughout my administration will focus on them, and we're working to reduce disruptions and minimise the impact of the financial market developments on the broader economy," he said.

Correspondents say the world has not seen a day like this since the Great Depression.

Tony Lomas, of administrators PricewaterhouseCoopers, tried to reassure Lehman's employees.

"Some of these people I expect will want to continue in employment with the company for many, many months to come as we begin to unravel the affairs of the various companies," he said.

"But obviously for some of them their tenure is going to be a shorter period than that."

The 5,000 staff at Lehman Brothers' London office say they have no option but to look for another job.

"I've only been here a week. And so my kind of career's been halted at the first hurdle," one employee said.

Other employees say it is "like a massive earthquake" and there is uncertainty surrounding the future.