World stock markets sink on Wall Street crisis

London: Asian and European stock markets were down sharply on Monday amid growing alarm over the world's financial system after a shake-up on Wall Street, with Lehman Brothers saying it would file bankruptcy and Merrill Lynch being sold to Bank of America.

In Europe, the FTSE was down 2.72 per cent in London, the Paris CAC-40 was off 3.52 per cent and Germany's DAX 30 index of blue chips sagged 2.99 per cent.

The dollar sank against euro, which rose to $1.4299 from $1.4215 late on Friday in New York. The pound rose against the dollar to $1.8052 from $1.7937.

Asia's biggest stock exchanges in Japan, Hong Kong and South Korea were closed for holidays, but every market open was deep in the red.

India's Sensex tumbled 5.4 per cent, Taiwan's benchmark plummeted 4.1 per cent, Australia's key index was down 2 per cent and Singapore dropped 2.9 per cent.

The declines came as Wall Street and the US government took a series of steps aimed at bringing an end to the credit crisis.

Troubled US investment bank Lehman Brothers Holdings Inc. announced it would file for bankruptcy after prospective buyers, including Barclays PLC, backed away from a deal over the weekend.

Also, Bank of American Corp. said in a statement early on Monday that it would acquire Merrill Lynch & Co. in an all-stock transaction worth about $50 billion.

Additionally, giant US insurance company American International Group Inc. said on Sunday it was discussing options with outside parties to improve its business.

The Wall Street Journal said on its website Sunday that AIG may announce a turnaround plan Monday that would involve selling assets such as its aircraft leasing business.

A global consortium of banks, meanwhile, announced late Sunday a $70 billion pool of funds to lend to ailing financial companies.

The shake-up was needed to restore confidence in the markets, said Lorraine Tan, director at Standard & Poor's equity research in Singapore.

"A lot of people are getting burned," she said. "It's better to get this out of the system. Hopefully for the US this could be it as far as potential failures of investment banks."

US stock index futures were down sharply, suggesting that shares would drop when trading opened in New York Monday morning.