Shares in London slumped by 6.2 per cent, or 254.02 points, to 3,833.81 as Britain teetered on the brink of recession after GDP shrank by 0.5 per cent during the second quarter.

The FTSE 100 index tumbled by 5 per cent when trading opened this morning following sharp losses in Asia. However, stocks fell further in London after it emerged that GDP had shrunk by 0.5 per cent, more than expected, between July and September.

Overnight, Asian stocks were engulfed in a tsunami of despair as wild currency volatility triggered an abject sell-off that sent many of the region’s major markets spiralling to five-year lows.

Stocks in Tokyo, Hong Kong, Singapore and South Korea were given a drubbing but the mood quickly spread. The financial meltdown has now caught emerging markets across Asia in its destructive wake — investors are pulling cash out of investments as quickly as possible, and the frenzy has also triggered a collapse in the carry trade borrowings that financed a large part of that speculation.

As the foreign exchange action grew more frenetic, trading floors in Tokyo and Hong Kong watched in near disbelief as the yen continued its relentless rise against the US dollar to end the morning at a 13-year high, destroying the profits of exporters and highlighting the depth of investor panic.

Analysts at Société Générale in Hong Kong pointed out that the volatility index has reached a high of 75, meaning that investors should expect daily swings of nearly 5 per cent in two thirds of trading sessions. If the index could be compared directly with what happened in the 1930s, said Glenn Maguire, it would be about the same as during the Great Depression. “The data certainly confirms the severity of the crisis. The equity market plunge is the most severe in post-war history,” he said.

The selling, which saw Japanese stocks in the Nikkei index given a nearly 10-per cent savaging, came despite efforts by Asian governments to draw up a concerted response to the financial crisis. Meeting at a summit in Beijing, leaders of Japan, China, South Korea and the 10 members of the Association of Southeast Asian Nations agreed to accelerate a process to establish a $80 billion ($50.3 billion) currency swap framework established in the aftermath of the 1997 Asian financial crisis. Some leaders suggested expanding the framework to $150 billion because of the severity of the situation.

In Tokyo, the sell-off was an across-the-board rout driven by fear of an earnings collapse across corporate Japan that forced the Nikkei index to close below the 8,000-point mark for the first time since April 2003. In Korea, the Kospi was similarly bludgeoned, losing its grip on the 1,000-point mark for the first time in three years.

In Hong Kong, the focus of the panic was on the banking sector, where HSBC slid more than 5 per cent because of its perceived exposure to those emerging markets that look shaky. Standard Chartered, which has made a speciality of emerging markets, was also hammered as a proxy for economic turmoil, with its shares plunging 11 per cent in Hong Kong trading.

“The market is looking squarely at emerging markets, and not liking what it sees. This is a flight from risk that is quickly turning into a stampede,” said one currency trader at Royal Bank of Scotland.

Explore Markets

• United States

• Europe

• Japan

• China

• Russia

• The Gulf

• India

• Africa

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive