The New Nation - Internet Edition

AFP, London

Global stock markets tumbled on Monday, despite a Wall Street bailout deal, as the ongoing financial crisis forced the state rescue of two key European banks.

Asian and European equities suffered fresh losses as the tentative US agreement to rid the financial sector of toxic mortgage-related assets gave only a short-lived boost to sentiment.

In Europe, Belgian-Dutch banking and insurance group Fortis sealed a government bailout, while Britain announced it would nationalise troubled mortgage lender Bradford & Bingley.

Investors were unsettled by signs of widening problems in the banking sector. London's stock market dived 2.51 per cent at 4,960.61 points in early deals, accelerating initial losses.

Paris shares plunged 2.87 per cent to 4,043.74 points and Frankfurt tumbled 3.16 per cent to 5,871.64 points.

Global central banks meanwhile pumped extra cash into the financial system as part of continued efforts to keep credit flowing.

'Despite the US bail out plan now being committed to paper, there's hardly a jubilant mood expected as the new trading week gets underway,' said CMC Markets dealer Matt Buckland in London. 'The fact the funds won't be released in one lot but instead a series of tranches is certainly detracting from its appeal.

'This, combined with the very visible scars of the credit squeeze t will again weigh in sentiment,' he added, in reference to the state rescues of B&B and Fortis.

The European Central Bank announced a special 38-day euro loan to provide eurozone banks with more cash in a bid to balance conditions on extremely tense interbank money markets.

German bank Hypo Real Estate was meanwhile granted a last-minute 'multi-billion euro' credit line from a consortium of German banks that allowed it to avoid declaring bankruptcy.

Hong Kong share prices closed down 4.3 per cent on Monday, as banking giant HSBC bumped up its mortgage rate, sending property stocks tumbling, dealers said.

Tokyo fell 1.26 per cent by the close, Sydney lost 2.0 per cent and Seoul dropped 1.35 per cent.

There were still doubts about the proposed US financial rescue package, which needs to be approved by Congress and offers no guarantee of an end to the credit crunch that has ravaged global markets, dealers said. 'In our view, while the 'bailout plan' reduces the risk of a systemic collapse, many downside risks remain - not least those related to a protracted slowdown in the global economy,' said Barclays Capital analyst David Woo.

'In addition t the financial market turbulence is seriously affecting the European financial system as well.'

He added: 'The weakness in equities t suggests the market is pessimistic about the likely effectiveness of the Treasury's plan.'

The US deal, announced just hours before Asian markets opened, is designed to mop up toxic debts from struggling banks and prevent further financial chaos that could tip the world's largest economy into recession.