London's leading shares fell sharply today as the euphoria over Barack Obama's election evaporated and markets around the world faced up to the hard reality of a deep recession.

Shares in London fell 185.61 points to 4,345.12, following sharp overnight falls in Asian markets and a 486.01 point fall on Wall Street last night.

The London market fell despite expectations that the Bank of England's Monetary Policy Committee would cut interest rates by at least half a percentage point at midday and could cut by a whole percentage point, which would be the biggest reduction in 15 years.

The pound also fell in anticipation of a rate cut to $1.5859 compared to $1.6151 dollars at yesterday's close.

European shares followed Asia and the US downward, as concern about the economy reasserted itself after days of stock market gains.

Investors are also awaiting an interest rate verdict from the European Central Bank, which is also expected to cut rates to stimulate growth.

Across Europe, Britain’s FTSE 100, Germany’s DAX and France’s CAC-40 were between 2.7 per cent and 3.2 per cent lower.

Oil company shares fell as the price of crude slipped more than 2 per cent to $63.84 a barrel. Total, ENI, BP, Royal Dutch Shell and Repsol fell between 2.7 and 3.8 per cent.

Hedge fund specialist Man Group fell 19.8 per cent after disappointing first-half results.

Further evidence of the sharp contraction in the British manufacturing sector, revealed in the UK yesterday, is expected this morning from the Society of Motor Manufacturers and Traders, which is expected to show that new car sales fell by nearly a quarter in October, compared with a year earlier.

Steep declines in Japan and Hong Kong overnight followed falls on Wall Street last night when it emerged that the number of job cuts by US businesses had soared to a six-year high.

In Tokyo, the leading Nikkei index fell 622.10 points, or 6 per cent, to 8,899.14, after large exporters, including Canon, the camera and printer-maker, and Honda Motor recorded steep declines on fears demand for products will worsen as the global slowdown gathers momentum.

Toyota, in particular, spooked traders when it announced a 72 per cent fall in operating profit, due to a stronger yen, weak sales and expensive raw materials.

Yesterday, ArcelorMittal, the world's largest steelmaker, said it would slash its output by 30 per cent as falling sales of cars meant there was less demand for metal.

Cash-strapped consumers are cutting back on large purchases such as vehicles while cautious lenders are increasingly reluctant to extend financing to potential car buyers.

In Hong Kong, stocks also fell heavily, and the Hang Seng lost 1,110.19 points, or 7.1 per cent, to 13,729.97, led by a 13.3 percent decline in Cathay Pacific after the airline warned about fuel hedging losses of $360 million would hit its full year results.

Concerns over the strength of the global economy, in particular America, also sent South Korea's shares plunging. The US is South Korea's second largest trading partner and the Korea Composite Stock Price Index ended trading down 7.6 per cent at 1,092.22 points.

Hideyuki Ishiguro, a supervisor at the investment strategy department of Okasan Securities, said: “With the election over, the eyes of investors are turning to the economy, with a sense that nothing quick can be done to stop the global economic slide.”

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