Markets in meltdown as fear grows of runaway debt crisis

GLOBAL stock markets plummeted yesterday as European Commission president José Manuel Barroso fuelled fears of further contagion by saying the debt crisis in the eurozone was not being contained.

Nervous traders will be on alert for today's jobs data from the United States, with poor results likely to trigger another bloodbath for stocks.

Eurozone and US debt concerns have wiped 125 billion off the value of the FTSE 100 index since last Friday, with yesterday's 3.4 per cent fall marking a second consecutive day of triple-digit losses.

The Footsie dived 191.37 points to end the day at 5,393.14, closing below 5,400 for the first time since 2 September last year.

Continental markets fared even worse, with France's CAC down 3.9 per cent and Germany's Dax 3.5 per cent lower.

Fears that Italy could default on its sovereign debt pushed Milan's stocks down 3 per cent, while Madrid sank 3.8 per cent as Spanish bond yields soared to their highest level since the inception of the euro.

In New York, the Dow Jones plunged 4.3 per cent - more than 500 points to 11,384 - amid fears that Congress's deal to raise the US debt limit could push the world's biggest economy back into recession.

Howard Wheeldon, senior strategist at BGC Partners, said: "Have politicians and lawmakers in the US and Europe got the message yet about the damage they have done to global confidence by their respective failure to act in time to cut deficits and sovereign based debt? Not a bit if it, and so we go on."

In a letter to eurozone leaders, Barroso called on politicians to fast-track the implementation of the European Financial Stability Facility. The facility, which has already bailed out Ireland and Portugal, and will run a planned second package for Greece, has a maximum capacity of €440 billion (348bn).

It will be replaced in 2013 by a €500bn permanent European Stability Mechanism.

Barroso said: "Euro-area financial stability must be safeguarded, with all European Union institutions playing their part with the full backing of euro area member states."I would like to call on you to accelerate the approval procedures for the implementation of these decisions so as to make the EFSF enhancements operational very soon."

But his attempts to calm the markets fell on deaf ears after he admitted the eurozone debt crisis was spreading.

The European Central Bank attempted to throw a lifeline to Italy and Spain by announcing new steps to keep banks supplied with unlimited, longer-term funds and signalling it was buying government bonds.

ECB president Jean-Claude Trichet said the bank would conduct a special six-month liquidity operation and keep providing unlimited short-term funds to banks until at least January.

The markets meltdown came as the Bank of England's monetary policy committee voted to keep interest rates on hold at a record low of 0.5 per cent, while its asset-buying programme was left unchanged at 200bn.