Discouraging Weekend News Swamps Euro Markets

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FRANKFURT -- Bourses tumbled 4% to 5% as a flood of horrible weekend news swamped markets with doom and gloom.

Most sectors were being battered, with the cruelest punishment again reserved for banks and financials.

Deutsche Bank

was down 4.1%, and

Banque Nationale de Paris

was down 7.3%.

And another big-time profit warning rattled markets, with the confessor today the music giant

EMI

. The firm warned that first-half profits would fall 20% due to global financial problems. Investors had no mercy, whacking EMI shares down 17.1%. Fears are growing that profit warnings from more companies are inevitable.

Trading volumes across Europe were light to moderate, although the risk of market panic is growing. Panic has thus far been held in check just below the market surface, but traders warned that a deep plunge today on Wall Street could spark an explosive eruption of panic selling here.

The fear was reflected by the huge demand for U.S. and German bonds, with yields again falling to record lows. The U.S. long bond was yielding 5.10%.

S&P 500

futures were down only modestly as Europe opened, but slid as the day progressed. At 7:50 a.m. EDT, futures were down 22.00 points at 1009.00.

Tim Wilson, trader at

Banque Nationale de Paris

in Frankurt, said many large investors have thus far steadfastly refused to sell in the face of increasing losses, but are now starting to waver as pain reaches unbearable levels.

"There is a general panic in the market," Wilson said. "If we keep going down, there is a chance we will reach a pain threshold and they will say 'Enough!' and start selling."

In Frankfurt, the

Xetra DAX

was down 193 points, or 4.2%, at 4429, having broken important support at 4450. A path is now open to crucial support at 4250. In London, the

FTSE-100

was down 96 points, or 1.9%, at 4959, and, in Paris, the

CAC-40

was down 163, or 4.7%, at 3301.

Alcatel

continued to bleed after last week's profit-warning-induced free fall, today down 4.7%. Other stocks hit hard included

Siemens

, down 6.1%,

Renault

, down 8.9%, and

Telewest Communications

, down 14.6%. Some other telecoms, many of which had enjoyed "defensive" status, also were hit hard.

The list of global woes was long, including today's release of

Bill Clinton's

videotaped

Lewinsky

testimony, a sharp decline in the ruble, civil unrest in Malaysia after the arrest of the former finance minister and renewed dollar weakness against the German mark, which cuts deeply into Euro profits. The dollar was bid at 1.6805 marks.

Japan concerns -- always smoldering in the background -- flared up again today on fears the nation might not be able to save itself from a deflationary abyss. Markets were rattled by indications that Japan's banking deal was falling apart, as well as by a debt downgrade by U.K. ratings agency

Fitch

. The

Nikkei

dropped 2.8% to a 12-year low, and the

Hang Seng

fell 3.7%.

Banks suffered big losses in Tokyo, and Hong Kong's bellwether

HSBC

was down 5.2% in London trading.

Toby Denne, head trader on the European equities desk at

Credit Lyonnais

in London, is worried that European markets might still be far from a bottom.

Many European investors have calmly watched markets fall 20% to 30% from July highs on the belief that the dip would be bought and the bull market would come roaring back, Denne said. But this ho-hum attitude is starting to crumble, and investors are starting to become afraid.

"I think there is a good chance markets might go into more of a free-fall scenario," Denne warned. "If this market goes up, I would use it as an opportunity to sell."