MercoPress. South Atlantic News Agency

Global stock markets plunge on fears of credit crunch

United States Treasuries surged Thursday in a flight to safety as stocks plunged in the US and Europe on growing fears of a global credit crunch and weaker than expected economic data.

The US Dow Jones index lost 311.5 points, or 2.3%, to 13,473.57, while the S&P 500 shed 2.3% to 1482.66; in London, the FTSE 100 closed 203.1 points, or 3.2%, lower at 6251.20. In Latinamerica markets Brazil's Bovespa plunged 3.76%; Argentina's Merval, 3.99%; Chile's IPSA 2.15% and Mexico 3.56% with the US dollar swinging back against local currencies. Many indexes have been trading at their highest levels in recent years, buoyed by low rates that fuelled high levels of consumer and corporate spending. The concerns are nothing new, and analysts and investors have been warning that a number of factors are combining to create worrying conditions for equity and credit markets. Over the past few years there has been a boom in company profits, house price increases, and mergers and acquisitions. Driving this have been low interest rates that have made it cheap for companies and consumers to borrow cash and finance purchases. That period of cheap cash now seems to be coming to an end with central banks worldwide, including the Bank of England, raising their main rates to slow stubbornly high inflation. At the same time, oil prices have climbed raising fears that inflation could also pick up again because of the higher energy costs. As stock prices tumbled, bonds rallied with investors looking for assets that could guarantee them steady and relatively safe returns. US Treasury Secretary Henry Paulson said that the global plunge of shares is the result of financial markets' volatility, which will always be present. "We'll always have volatility. What we're seeing is the reassessment of risk and as long as risk is being reassessed we'll have volatility", said Paulson.