Italian Prime Minister Silvio Berlusconi and US President George W. Bush

World stock markets fell sharply Friday, as Wall Street headed towards its eighth straight day of losses over fears the global economy is set for a protracted recession.

Asian shares began the trading day with steep drops, and Russia's markets never opened. At one point, European and United States shares appeared to be in free fall Friday afternoon London time, when the Dow Jones index on Wall Street opened a breathtaking seven per cent lower - below the 8,000 level.

A partial recovery in the US helped European shares recover some ground.

Modest recovery

Following the Dow's modest recovery, the FTSE ended 381.74 points, or 8.9 per cent, lower at 3,932.06, the first time it has ended below the 4,000 level in five years.

Germany's DAX ended down 342.69 points, or seven per cent, at 4,544.31, while France's CAC-40 was 266.21 points, or 7.7 per cent, lower at 3,176.49.

All three indexes had been even lower when Wall Street opened.

In spite of the huge bailout in the US, Britain's plan to buy up stakes in troubled banks, coordinated interest-rate cuts around the world and massive central bank liquidity provisions, the sell-off in stock markets shows no signs of abating so long as lending rates between banks remain elevated.

Banks afraid to lend

That means banks are afraid to lend to each other, and raises the chance that they and other businesses would not get the credit they need to operate.

At the bell, the Dow briefly dipped nearly 700 points, to below the 8,000 point level, amid rising fears of the depth of a global recession before some bargain hunting helped it recoup some losses.

By late-afternoon London time, the Dow was 363.28, or 4.2 per cent, lower at 8,215.91.

Smaller markets also took a beating. Trading was suspended at various times in Austria, Russia, Iceland, Romania and Ukraine, while Milan suspended share dealings in nearly half of its stocks because of excessive losses.

Italian Premier Silvio Berlusconi even raised the prospect Friday that world leaders might consider suspending stock markets in response to the financial meltdown.

The solutions to the crisis will have to be "global and innovative", Berlusconi said. "There is talk of suspending the markets" while international financial rules are "rewritten".

"There must have been moments recently when policymakers wished they could close down the financial machine, as Roosevelt did, as a preliminary to conducting remedial work on it," said Stephen Lewis, an analyst at Monument Securities, referring to 1930s Depression-era President Franklin D. Roosevelt.

Can we close the market?

"For policymakers, the chief problem in closing the markets would be in knowing how and when to open them again," he added.

The benchmark Nikkei 225 index in Japan fell 881.06 points, or 9.6 per cent, to 8,276.43, its lowest closing level since May 2003. It was its biggest one-day percentage loss since the stock market crash of October 1987 and meant that the Nikkei lost nearly a quarter of its value during the week.

In Australia, where the S&P/ASX200 plummeted a record 8.3 per cent, market watchers were calling it 'Black Friday.' Key indexes in Hong Kong, Singapore, the Philippines and India were all down about eight per cent. South Korea's Kospi closed down 4.1 per cent, while the Shanghai Composite Index posted a more moderate decline of 2.8 per cent.

And in Indonesia, authorities suspended trading indefinitely on the Jakarta Stock Exchange after they had halted trading Wednesday after the index plunged more than 10 per cent.

US President George Bush sought to reassure traders. He said that major Western countries were working together in an attempt to stabilise markets, including coordinated cuts in interest rates.

"Through these efforts, the world is sending an unmistakable signal. We're in this together and we'll come through this together," Bush said.

- AP