US stocks fell by 421.81 points in early trading today amid panic selling by traders on concerns that government moves to help struggling Americans and rescue the banking system will fail to stop a recession.

Shares in the Dow Jones industrial average index fell to 8,354.82, below a much steeper fall that was predicted in pre-market trading, which had to be halted because of a huge decline in futures trading.

Futures contracts for delivery in December — securities which allow a trader to effectively bet on the value of the Dow Jones industrial average in the next two months — plummeted so rapidly this morning that the price fall triggered a freeze in selling.

While the near 7 per cent fall automatically sets off a circuit breaker designed to avert panic selling, traders can resume selling afterwards. The Dow Jones would have to fall more than 1000 points today before another circuit breaker would halt trading.

Such anxiety has been triggered by severe losses overnight on markets in Asia with Tokyo's Nikkei down almost 10 per cent.

London also sustained heavy losses, with the FTSE 100 index of leading stocks falling 8.41 per cent, or 343.92 points, to 3,743.91 after it emerged that UK GDP shrank by 0.5 per cent in the third quarter, which was much higher than expected.

The fall in growth is the first quarterly contraction of British GDP since 1992, and signals that the UK is teetering on the brink of recession. The technical definition of a recession is two successive quarters of negative growth.

In the US, fears that recent co-ordinated moves by the world's central bankers to cut interest rates and offer emergency bail-out loans will fail to stem a severe global recession, triggered panic about the short term future of specific American companies this morning.

Carl Weinberg, US economist at High Frequency Economics, warned that stock market conditions in the last 24 hours have been so volatile he has told clients to watch out for emergency rate cuts from central banks.

The European Central Bank has already hinted this week that it is minded to reduce the cost of borrowing in the short term.

Dealers became so nervous they ignored quarterly results published last night by Microsoft, the world's biggest computer company, which were far better than expected.

Instead, stocks such as General Motors were marked down 10 per cent and its rival Ford fell 5 per cent. The US car industry is already in dire straits, hit by the persistently high price of gasoline and slowing demand among cash strapped Americans.

However, since the banking crisis erupted two months ago, lenders have pulled out from various types of unsecured lending and car loans in the US are now practically impossible to secure. The lack of credit in auto financing is estimated to cost Ford, General Motors and Chrysler at least 6 million new car sales by the end of the year.

Banking stocks also took a beating with Morgan Stanley falling 10 per cent while Goldman Sachs lost 7 per cent.

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