Global stocks mainly fell on Monday, despite a multi-billion-dollar US government lifeline for the American auto industry, as analysts warned of volatile trading in the run-up to Christmas.
A woman checks the stock price in front of a Tokyo brokearge as Japanese shares fell Friday, Dec. 19, 2008. (AFP Photo)
Investors also pondered whether markets would enjoy a so-called Santa rally at the end of a year which saw the global financial crisis help spark a recession in the eurozone, Japan and the United States.
Traders had been lifted by the announcement of a 13.4-billion-dollar (9.5-billion-euro) government bailout for two of the Big Three US automakers but soon fell away as concerns for the global economy returned.
"Equity markets start the week slightly lower although with the Christmas break nearing, the coming days' trade will be characterised by lower volumes and increased volatility as a result," said CMC Markets dealer Jimmy Yates.
"There's also the question as to whether we'll see the famed Santa rally as 2008 draws to a close, but with a year that has been defined by high levels of volatility, such patterns may yet prove somewhat elusive."
European stocks slid in morning deals, with Frankfurt down 1.86 percent, London losing 0.91 percent and Paris dropping 1.63 percent.
In recession-hit Germany, the market sank after a new poll showed that consumer confidence stagnated after three straight months of gradually growing optimism.
The outlook index from the GfK institute for Europe's biggest economy remained at 2.1 points for January, after an initial value of 2.2 points for December was revised lower by 0.1 points.
In Asia on Monday, Hong Kong shares dived 3.3 percent, as heavyweight China Mobile pulled down the main index and investors took profit after a two-week surge.
Shanghai lost 1.52 percent, Sydney closed 1.6 percent down and Seoul finished 1.36 percent lower. Singapore shed 2.78 percent and Kuala Lumpur declined by 0.3 percent.
However, Tokyo won 1.57 percent despite the government saying for the first time in almost seven years that the outlook for the world's second biggest economy was getting worse. The last time it used such negative language was in February 2002.
As industrial production and corporate profits deteriorate, "the economy is likely to continue worsening for the time being," the Cabinet Office said in its monthly report.
Investors were somewhat encouraged by Washington's lifeline to US auto giants, with an easing of the strong yen also offering relief, dealers said.
"With that major concern now eased, the market should find some support for the remaining portion of the year," Hiroyuki Fukunaga, chief executive officer at Investrust, told Dow Jones Newswires.
Earlier, Tokyo released data showing a record drop in exports as the worst global financial crisis in decades bites deeper and a strengthening yen make it harder to sell overseas.
Japan reported a trade deficit of 223.4 billion yen (2.5 billion dollars) in November as exports fell at their fastest-ever rate, the finance ministry said.
The trade deficit, which compared with October's deficit of 67.7 billion yen, reversed a surplus of 784.4 billion yen a year earlier, even though imports fell for the first time in 14 months.
On Sunday, International Monetary Fund (IMF) chief Dominique Strauss-Kahn predicted a "very dark" 2009 that could be worse than expected if states did not take sufficient action.
"Our forecasts are already very dark, but they will be even darker if not enough fiscal stimulus is implemented," he told BBC radio in London, predicting recession for advanced economies and decreasing growth for emerging ones.
Markets were boosted after US President George W. Bush on Friday unveiled the long-awaited bailout for General Motors and Chrysler to save them from imminent bankruptcy and stave off the loss of hundreds of thousands of jobs.
The move rallied Wall Street briefly before the Dow closed 0.38 percent lower, although the tech-heavy Nasdaq added 0.77 percent. Wall Street was due to reopen on Monday at 1430 GMT.