11/10/2011 03:51 EST | Updated 01/09/2012 05:12 EST

World stocks markets sink as Italy borrowing costs soar and talks in Greece break down

BANGKOK - Setbacks in Europe's efforts to isolate a debt crisis before it engulfs Italy or blows up into an all-out recession sent global stock markets tumbling Thursday.

Benchmark oil hovered around $95 per barrel and the dollar rose against the euro but fell against the yen.

European bourses fell in early trading. Britain's FTSE 100 lost 1.4 per cent to 5,384.14. Germany's DAX dropped 1.8 per cent to 5,724.92 and France's CAC-40 was 1.8 per cent lower at 3,019.92. Wall Street was also headed for a lower opening, with Dow Jones industrial futures down 0.1 per cent at 11,715 and S&P 500 futures marginally lower at 1,225.40.

The losses in Europe tracked those in Asia. Japan's Nikkei 225 index fell 2.9 per cent to 8,500.80 — a five-week closing low — and Hong Kong's Hang Seng dived 5.3 per cent to 18,963.89. South Korea's Kospi slid 4.9 per cent to 1,813.25 and Australia's S&P/ASX 200 lost 2.4 per cent to 4,244.10.

In New York on Wednesday, the Dow Jones industrial average fell almost 400 points, its worst decline since Sept. 22.

Global stock markets were rattled after Italy's main borrowing rate blew past 7 per cent — putting the country at the front and centre of a debt crisis that had until recently focused mainly on Greece. The 7 per cent figure is considered an important level because Greece, Portugal and Ireland required bailouts from other nations when interest rates on their bonds hit that mark.

As the third-largest economy in Europe, Italy's $2.6 trillion debt is considered too large for other European countries to absorb. A default could lead to the disintegration of the euro currency used by 17 nations or a debilitating recession.

Derek Cheung, chief investment officer at Neutron INV Partners Ltd. in Hong Kong said the absence of stock buyers looking for bargains as losses accumulated throughout the day was a sign of investor pessimism, at least in the near term.

"There's no bottom-fishing. That kind of surprised me," he said. "That means people may expect this kind of correction to last for more than one day."

Investors were further unnerved after government talks in Greece aimed at avoiding a default on its massive debts broke down. Markets fear that a Greek default would lead to huge losses for European banks — and potentially to a global lending freeze similar to what happened after Lehman Brothers fell in 2008.

Greece has survived since May 2010 on a €110 billion ($150 billion) rescue loan package but needs another huge injection of funds to prevent a massive default on its debt.

Energy and resource shares were hurt by fears that the financial turmoil could drag down world economic growth. Hong Kong-listed China National Offshore Oil Corp., or CNOOC, fell 5 per cent. Japanese energy explorer Inpex Corp. dropped 6.2 per cent. Australia's Fortescue Metals Group lost 8 per cent.

High-tech stocks and heavy industry also got hammered. Japan's Elpida Memory Inc. tumbled 10.7 per cent and Hitachi Construction Machinery lost 6 per cent.

South Korea's Samsung Electronics — the world's No. 1 maker of flat screen televisions, memory chips and liquid crystal displays — lost 5.1 per cent. Shipyard Hyundai Heavy Industries fell 7.8 per cent.

Hong Kong-listed Industrial & Commercial Bank of China plunged 8.7 per cent on reports that Goldman Sachs was selling a significant stake in the world's largest bank by market value. Bank of China lost 6 per cent and Agricultural Bank of China, China's biggest rural lender, fell 6.8 per cent.

Australia's Orica Ltd., the world's largest explosives maker, dropped 3.4 per cent after the company was ordered to shut down one of its plants following chemical leaks.

The Dow finished down 389.24 points, at 11,780.94, its worst decline since Sept. 22. The S&P 500, the broadest major stock index, closed down 3.7 per cent, or 46.82 points, at 1,229.10 — its worst day since Aug. 18. The Nasdaq composite index lost 3.9 per cent at 2,621.65.

Benchmark crude for December delivery was down 31 cents at $95.45 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell $1.06 to settle at $95.74 in New York on Wednesday.

In currencies, the euro slipped to $1.3529 from $1.3540 in late trading Wednesday in New York. The dollar dropped to 77.64 yen from 77.85 yen.