European and Asian stocks tumbled, led by banks, while U.S. shares recovered from a rout as concern swept through financial markets that a widening credit crunch may hurt economic growth and earnings.

Countrywide Financial Corp. and Washington Mutual Inc. led shares of U.S. mortgage companies lower. Societe Generale SA fell, while ABN Amro Holding NV dropped the most in a year on speculation financial-market turmoil may derail the biggest banking takeover. Macquarie Bank Ltd. paced declines in Asia.
“Investor sentiment is poor and will likely get worse as we work our way through the wreckage,” said Simon Carter, who helps oversee $3 billion at Aegon Asset Management in Edinburgh.
The Morgan Stanley Capital International World Index lost 1.5 percent to 1531.32, while the Dow Jones Industrial Average fell 0.2 percent to 13,239.54 after dropping as much as 1.6 percent.
The MSCI World has dropped 7.5 percent since touching a record on July 19 on concern the rout in U.S. subprime mortgages may seep into the economy, erode earnings and curb takeovers.
Europe's Dow Jones Stoxx 600 sank 3.1 percent to 362.77. The U.K.'s FTSE 100 dropped 3.7 percent, France's CAC 40 lost 3.1 percent, and Germany's DAX decreased 1.5 percent.
Japan's Nikkei 225 Stock Average declined 2.4 percent, the most since March 14, as all markets fell. Benchmark stock indexes in Brazil, Mexico, Turkey and Sweden also dropped.
A gauge of U.S. stock market volatility climbed to the highest since April 2003. The Chicago Board Options Exchange Volatility Index gained 6 percent to 28.08. Higher readings in the so-called VIX, derived from prices paid for S&P 500 options, indicate traders expect bigger price swings in the next 30 days.
Central banks in the U.S., Europe, Japan, Australia and Canada added about $132.7 billion to the banking system in an attempt to avert a crisis of confidence in global credit markets.
The Fed pledged to provide liquidity through its discount window to cover unusual funding needs at some banks.
“The fact that the central banks are coordinating their moves on liquidity suggests that the problems are bigger than people think,” said Timothy Woolston, who helps manage $2.4 billion at Boston Advisors LLC in Boston. But it also suggests that the central banks are on top of this.
In the U.S., telephone companies declined the most among 10 S&P 500 industries, losing 0.8 percent. An index of utility stocks slipped 0.5 percent, while energy shares added 1.2 percent. Countrywide sank 80 cents, or 2.8 percent, to $27.86. The company said mortgage-market disruptions may crimp profit and it may have difficulty obtaining financing from creditors.
Washington Mutual Inc. dropped 81 cents to $35.95. The biggest U.S. savings and loan said in its own filing that liquidity in the market for mortgages made to borrowers below the top credit grade had diminished significantly.
“The secondary market and funding liquidity situation is rapidly evolving, and the potential impact on the company is unknown,” Countrywide said in a filing with the U.S. Securities and Exchange Commission. These conditions may continue or worsen in the future.
Goldman Sachs Group Inc., the biggest securities firm, dropped $1.75 to $180.50. State Street Corp. fell $2.53 to $68.03. Punk Ziegel & Co. lowered its rating on the world's biggest institutional money manager to market perform from buy.
ABN Amro lost 3.5 percent to 33.85 euros. The largest Dutch lender is the target of a takeover battle between Barclays Plc and a group consisting of Royal Bank of Scotland Group Plc, Banco Santander SA and Fortis. Barclays this week won European Union approval to buy ABN Amro.
-------------Deal jeopardized
“The market turmoil does jeopardize the ABN Amro deal,” said Mike Trippitt, a London-based analyst at Oriel Securities Ltd. ABN Amro spokesman Jochem van de Laarschot said there were no new developments on the offer process.
Shares of Barclays fell 6.4 percent to 638 pence, and Royal Bank of Scotland declined 3.9 percent to 562 pence.
Societe Generale, France's second-biggest lender, fell 5 percent to 122.2 euros. Deutsche Bank, Germany's biggest bank, fell 2.6 percent to 95.50 euros. UniCredit SpA, Italy's biggest, sank 3.6 percent to 6.04 euros.
Macquarie, the largest Australian securities company, declined 7 percent to A$72.10. Its Macquarie Fortress Investments Ltd. unit, which had $873 million in two high-yielding funds, said on July 31 it was forced to sell assets to avoid breaching loan agreements.
Toyota, set to become the world's largest automaker by sales, retreated 2.5 percent to 7,090 yen. Samsung, Asia's top maker of computer chips and mobile phones, fell 2.9 percent to 603,000 won.
BHP Billiton Ltd., the world's largest mining company, declined 6.7 percent to 1,261 pence in London. Shares of Rio Tinto Group, the third biggest, dropped 6.2 percent to 3,008 pence.
Copper, nickel and zinc headed for a third straight week of declines in London on speculation that losses linked to U.S. subprime mortgages will spread to commodities, damping metal demand. Oil prices fell to a five-week low in New York.
Man Group Plc, the world's largest publicly traded hedge fund company, tumbled 9.1 percent to 479.25 pence as investors shunned companies that rely on stock markets. Man Group indefinitely delayed plans to sell shares of Man Dual Absolute Return Fund in the U.S. because of volatile markets, Reuters said today. A spokesman for Man declined to comment.
Old Mutual Plc fell 5.9 percent to 151.9 pence after the UK insurer that makes most of its profit in South Africa said first-half operating profit fell more than analysts estimated, hurt by the weakness of the South African rand and the U.S. dollar.
General Electric Co., the world's second-biggest company by market value, fell 71 cents, or 1.8 percent, to $38.23. The company, which makes everything from jet engines to medical imaging equipment, posted its largest two-day decline since 2002 amid speculation higher financing costs will reduce global demand. (Source: Bloomberg