Asian markets in selling frenzy | Commodities ravaged | Bruiser of Wall St looked after people | Memorabilia worth more than bank | Middleman left holding parcel | Leader: after Lehman

Fears of a global financial meltdown grew yesterday as the world’s biggest bankruptcy plunged markets into turmoil.

Investors were left reeling as the abrupt demise of the Lehman Brothers investment bank sparked the biggest shake-up on Wall Street in decades.

Another of US capitalism’s biggest institutions, Merrill Lynch, is to be swallowed by Bank of America in a $50 billion takeover to save it from collapse.

Times Archive, 1929: Wall-Street panic

A Niagara of liquidation fell upon the American Stock Exchange today

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Shares fell as fear spread through the financial system. Central banks unveiled urgent measures amid concerns that the world economy was entering a dangerous new phase. The Bank of England injected £5 billion of emergency lending into money markets.

The 5,000 Lehman staff in Britain were clearing their desks yesterday in the country’s biggest single loss of jobs since the collapse of Rover in 2005. The majority of the bank’s 26,000 staff around the world are expected to lose their jobs.

Leading shares on both sides of the Atlantic took a battering. More than £50 billion was wiped off London’s bluechip shares as the FTSE 100 index tumbled by 212.5 points, or more than 4 per cent. It was the darkest day for the stock market since January 21, when it fell 5.5 per cent.

Investors were fretting over the financial health of banks that had lent Lehman money – and the fear that more big institutions would be wiped out. “It’s clear that we are one step away from a financial meltdown,” Nouriel Roubini, a leading international economist, said.

London’s losses were stemmed as Bank of America’s rescue bid for Merrill Lynch helped to limit yesterday morning’s sell-off on Wall Street. When London closed, the benchmark Dow Jones industrial average was down 300 points, or 2.6 per cent. Sentiment was also bolstered by steep falls in oil prices, which dropped by more than $5 a barrel to $96, closing under $100 for the first time in six months and raising hopes that cheaper fuel would ease economic stresses on Western nations.

However, by close of trading the Dow had fallen by more than 500 points – its biggest one-day drop since the reopening after the September 11 attacks – as concerns mounted over the world’s largest insurer. Shares in American International Group (AIG), which sponsors Manchester United, fell by 45 per cent after it made an unprecedented approach to the US Federal Reserve for $40 billion in emergency funding.

Last night the Fed asked Goldman Sachs and J P Morgan Chase, two of Wall Street’s remaining big banks, to head a $75 billion emergency package to keep AIG afloat.

As central banks battled to stabilise the system, the Fed eased its rules for emergency lending further. It announced that it would accept company shares in return for crisis loans for the first time. In Frankfurt, the European Central Bank injected €30 billion in emergency funds into eurozone markets.

A group of ten global banks also attempted to foster calm, announcing a $70 billion pool of funds, with any one of them able to tap a third of that should they hit difficulty.

The collapse of Lehman came after the US Treasury refused to bail out the embattled 158-year-old bank, a crucial shift after its support in March for a Wall Street rescue of the failing Bear Stearns.

Lehman was felled by the weight of about $60 billion in toxic bad debts. It went under holding assets of $639 billion against debts of $613 billion, making it the biggest corporate bankruptcy since WorldCom collapsed in 2002.

President Bush, seeking to assuage fears yesterday, conceded that “in the short run adjustments in the financial markets can be painful”. However, he added: “In the long run, I’m confident that our capital markets are flexible and resilient, and can deal with these adjustments.”

Henry Paulson, the US Treasury Secretary, insisted last night that the American banking system remained “safe and sound”. Washington was committed, he said, to minimising the impact of what he admitted were the “painful” economic shifts of the present crisis.

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