World stock markets fell sharply on Wednesday and currency markets churned as casualties mounted from worsening credit markets and investors scrambled away from riskier assets.
European shares were down more than 2 percent, following similar losses in Japan and a 4 percent tumble in the rest of Asia. MSCI's main world equity index lost 1.4 percent and is now down around 6.5 percent in a week and a half.
Safe-haven government bonds gained while the Japanese yen climbed and high-yielding currencies dropped on the unwinding of popular borrowing trades.
These are unbelievable periods of volatility, it's pretty stressful, said one corporate bond trader in Frankfurt.
The immediate cause of Wednesday's market gyrations were signs that worries about credit problems are taking a more tangible form.
-- American Home Mortgage Investment Corp. (AHM.N: Quote, Profile, Research) said on Tuesday it may have to liquidate assets and that it was unable to borrow on its credit facilities.
-- Bear Stearns Cos. Inc., recently embarrassed by the collapse of two hedge funds, said on Tuesday it had halted redemptions in a third hedge fund after jittery investors wanted to pull out their money.
-- Australia's Macquarie Bank warned on Wednesday that retail investors in two debt funds face losses of up to 25 percent.
Investors have been jittery about the spread of trouble in the U.S. subprime -- or risky -- mortgage market to other debt, contagion which could cause large losses, drive up the cost of corporate borrowing and undermine mergers and acquisitions.
The iTraxx Crossover index, the most widely watched indicator of European credit sentiment, was about 60 basis points wider at 460 basis points.
Volatility has soared. Wednesday's market moves followed a short-lived rally on Tuesday, prompting Justin Urquhart Stewart, a director at 7 Investment Management to compare the immediate outlook to a bungee jump with a dodgy piece of elastic.
STOCKS, CURRENCIES, BONDS
The FTSEurofirst 300 index of top European shares was down 2.36 percent after rallying 2 percent on Tuesday.
Britain's FTSE 100 index fell 2.4 percent, while Germany's DAX dropped 2 percent and France's CAC 40 fell nearly 3 percent.
MSCI's measure of Asia Pacific stocks outside Japan, meanwhile, tumbled 4.1 percent and Japan's Nikkei dropped 2.2 percent to its lowest close since mid-March.
The yen clambered to a three-month high against the dollar and euro and high-yielding currencies fell sharply as investors sought to unwind carry trades in which they have borrowed in low-yielding currencies to buy assets in higher-yielding ones.
The dollar was down 0.6 percent against the yen from late U.S. trade at 117.67 yen, Reuters prices showed. The euro was down 0.8 percent at 160.63 yen.
The high-yielding Australian dollar shed 0.4 percent against the dollar and was down sharply against the yen.
Euro zone government bond yields also fell and prices rose on safe-haven plays. The September Bund future was up 43 ticks at 113.18.