Stock markets slumped around the world on Thursday, with European indexes clocking their worst overall day's trading since March 2009. The amalgamated FTSEurofirst 300 index of top-value European shares ended the session down 4.8 percent.

"The market is beginning to price in a recession," CMC markets analyst Michael Hewson said. "And until we get some clear idea of how policymakers are going to deal with eurozone sovereign debt problems, it's not going to get any better."

In Frankfurt, the DAX plummeted 5.82 percent to 5,602 points - with Germany among the worst performers of the day. The CAC 40 in Paris finished trading 5.48 percent lower, while the FTSE 100 index of leading British companies was down 4.49 percent. Milan lost over 6 percent, Madrid was down a little under 5 percent.

At the completion of Thursday trading in the US, the country's major indexes also suffered sizeable losses. The Dow Jones Industrial Average closed down 3.68 percent, whilst the broader S&P 500 sank 4.46 percent. The tech-heavy Nasdaq, meanwhile, suffered deeper losses, closing 5.22 percent down.

Manic month

Gold prices have risen 44 percent in 12 months, and over 11 percent in the last 30 days

The past four weeks of trading have been something of a rollercoaster ride, with the markets yo-yoing amid economic and financial uncertainty. The losses, however, have far outweighed the gains, as a look at longer-term figures shows.

Germany's DAX has lost over 20 percent of its value in just under a month, the CAC 40 in Paris has shed virtually one fifth of its value in the same period, while London's FTSE could almost be considered a strong performer, having fallen by "just" 15 percent since July 22.

"Sentiment on financial markets has deteriorated noticeably over recent weeks, equity prices have fallen sharply, reflecting heightened worries of a recession," economist Nick Kounis at ABN Amro said.

Again the banking sector was among the biggest losers on Thursday, with French lenders leading the slide. Societe Generale shares shook off 12.3 percent of their value, Britain's Barclays was down by 11.5 percent, and Germany's Commerzbank lost out by 10.5 percent.

Investors, still worried about eurozone sovereign debt and poor growth figures released this week in Europe, have continued seeking out safe havens; the price of gold, which has been skyrocketing for weeks now, hit another all-time high of $1,826 per ounce on Thursday.

Investors and politicians clashing?

Many traders were displeased with Merkel and Sarkozy's latest meeting

Some analysts pointed to the recent political pledge from Chancellor Angela Merkel and President Nicolas Sarkozy as a reason for the slump. The two announced on Tuesday, after a special meeting on the eurozone's debt problems, that the markets' preferred "Eurobonds" solution - which would essentially involve pooling eurozone sovereign debt together - was not an option in the short or medium term.

Instead, the French and German leaders proposed continued and legally mandated belt-tightening among eurozone governments, the formation of an EU body to oversee this process, and a possible EU-wide tax on financial transactions - a particularly unattractive prospect for traders around the world. This Franco-German policy suggestion is designed to make investors think twice before buying and selling and thus help safeguard against such wild market fluctuations - not to mention recoup some extra revenues for cash-strapped governments - but it could lead to even more frenetic trading in the interim as people seek to make the most of tax-free buying and selling.

"A brutal day so far for the equity markets with financials under pressure, not helped by the Sarkozy-Merkel proposals for a financial transaction tax but also by worries that a key eurozone bank is in trouble," VTB Capital economist Neil MacKinnon summed up.

One unnamed eurozone bank took out a one-week US currency loan of $500 million from the European Central Bank on Wednesday, the first time any lender has taken up this option since late February 2011. Short-term dollar borrowing costs for eurozone banks have tripled in the last month.

Author: Mark Hallam (AFP, dpa, Reuters)

Editor: Susan Houlton