s on so many other days in recent weeks, traders and analysts on Wall Street arrived at work Friday morning fearing the worst. This time, however, the worst did not come to pass.
European stock markets sent stocks tumbling by more than 500 points in early trading in New York, but they recovered enough ground through the day to leave the Dow Jones industrial average down 312.30 points, or 3.6 percent, at 8,378.95.
The broader Standard & Poor’s 500-stock index reached its lowest level since early 2003, closing down 3.5 percent.
Just a year ago, a drop of that size would have been considered a very bad day, but for investors in these tumultuous days it almost came as a bit of a relief.
Fears had begun to mount with a huge overseas sell-off that began in Asia, where big companies like Toyota, Sony and Samsung all disappointed investors with their earnings and their forecasts. The Nikkei average in Japan closed down almost 10 percent.
The tide of bad news continued as markets opened in Europe, with Britain reporting that its economy shrank in the third quarter. The pound fell to its lowest level against the dollar in five years. European shares recovered some ground in the afternoon, with the losses in Frankfurt and London pared to 5 percent at the close.
The sell-off appeared to be driven by two broad forces. First, investors are increasingly convinced that the global economy is headed for a long, painful recession. Second, hedge funds and other investors are being forced to sell their stocks and bonds to pay off investors and lenders.
By the time investors awoke in New York, they learned that Wall Street stock futures had fallen so far — including a 550-point decline in the Dow — that trading in them had been halted. A spokesman for the New York Stock Exchange had to affirm that it would indeed open for trading. Everyone was on notice that the market could fall at least 6 percent and perhaps much more.
A few minutes before trading was set to open at the New York Stock Exchange, an unusually large crowd of camera crews and reporters jostled for space in the press gallery to catch glimpses of traders at the opening bell.
The usual team of market watchers from CNBC were joined by the likes of Al Jazeera and French television.
As trading started, the Dow dropped 450 points, or about 5 percent, and the floor appeared calm. Some traders said they took some solace that the decline had not been greater.
“It was frightening, absolutely frightening,” Warren Meyers, a floor trader for Walter J. Dowd Inc., said about trading in the European and futures markets. “Every day we are walking on shaking ground.”
Indeed, there were fresh reminders of the economic turmoil. Chrysler, the embattled auto manufacturer, said it would slash 25 percent of its salaried work force. And airline passenger traffic fell 2.9 percent around the world in September, according to a Geneva-based trade group, a sign of further problems to come for the ailing aviation industry.
In an emergency meeting in Vienna, OPEC ordered a cut in oil production of at least 1.5 million barrels a day to try to slow the slide in oil prices. But oil futures still fell $3.69 on Friday, to $64.15 a barrel, helping to send shares of energy companies down sharply.
A spokesman for the White House, Tony Fratto, said on Friday that “markets are trying to digest lots of new information, both changing economic conditions as well as official policy responses, and it will take time for conditions to settle.”
On Wall Street, the yields on Treasury bills dropped, a sign that investors were seeking the safety of the government notes. The yield on the 30-year Treasury note fell to its lowest level in 30 years.
A contraction in the economy of Britain, coupled with poor corporate earnings in England and Europe, helped the dollar gain again against the pound and the euro.
In the United States, the stocks of automakers like Ford and General Motors suffered after Toyota reported sales declines, suggesting a worsening environment for all carmakers. In Germany, Daimler’s stock dropped 11.4 percent after it reported lower third-quarter earnings.
Falls on the London stock exchange were led by declines in banking, airline and mining shares. In Paris, Air France warned of lower profits, sending its shares down by almost 10 percent.
In Britain, data released on Friday showed that economic output shrank for the first time in 16 years, by 0.5 percent between July and September, according to the Office for National Statistics.
Britain is the first of the seven most-developed industrialized nations to publish economic data for the quarter and some economists said they expected the other nations also to report that gross domestic product shrank.
This is going to be a long, drawn-out downturn of about five quarters of negative growth and there will be very few major economies that will escape recession,” said James Knightley, an economist at ING Financial Markets in London. “With asset values falling, real incomes down and corporate profits declining we can see a real drop in investments and the government is in no position to help.”
The figures confirmed comments earlier this week by Prime Minister Gordon Brown and the Bank of England governor, Mervyn King, that a recession was probable. The National Institute of Economic and Social Research said on Wednesday that Britain’s economy would suffer more than other major industrialized countries because of a combination of rising household and public debt, a sharp fall in consumer spending and decline in house prices.
Stuart Thomson, investment manager at Resolution Asset Management in Glasgow, said the British economy could face as much as three years of recession. “It’s a global phenomenon and that makes it worse,” Mr. Thomson said.
In Asia, there were losses throughout the region. The Kospi index in South Korea plummeted 10.6 percent, falling 1,000 points and heading for a total decline this year of more than 50 percent. The Straits Times index in Singapore hit a four-year low, down 4.8 percent. The Hang Seng in Hong Kong dropped 8.3 percent and Taiwan closed down 3.1 percent.
The sell-off came as the yen reached a 13-year high of 95.35 against the dollar. Sony, which is suffering an added burden from the strong yen, shocked investors with a sharp reduction in its full-year earnings forecast after the close of trade in Japan on Thursday.
The stock was punished on Friday, plunging 14 percent to a 13-year low. Sony, which cited “a deterioration in the market environment brought on by the slowing global economy and an intensification of price competition,” is heavily reliant on export markets in the United States and Europe, where its goods have become more expensive to consumers thanks to the appreciation of the Japanese currency in recent months.