World stocks hit a one-week low and government bonds rose on Monday after General Motors and Chrysler edged closer to bankruptcy as their turnaround plans were rejected and tensions rose in Europe's banking sector.
The Obama administration's autos task force rejected multi-billion dollar pleas from the two U.S. automakers for more funds and warned both could be put through bankruptcy to slash debts. The auto industry woes are putting more pressure on Group of 20 leaders as they meet in London this week to discuss measures to tackle the crisis.
In the latest sign of global stress, Spain was forced to bail out regional savings bank Caja Castilla la Mancha, its first banking rescue since the financial crisis began.
Fears of a major auto industry failure triggered a 3-percent fall in European shares and boosted safer instruments, such as government bonds and the yen.
"A failure of General Motors would be negative for the other carmakers, as it would drag along a large number of suppliers," said Heino Ruland, strategist at Ruland Research. MSCI world equity index .MIWD00000PUS fell 2 percent, having risen 4.5 percent last week. The FTSEurofirst 300 index .FTEU3 fell 3.3 percent. GM shares fell nearly 19 percent in Europe (GM.F).
Tokyo shares .N225 fell 4.5 percent, their biggest one-day fall in over two months, hit by the U.S. auto concerns.
"The fact that there's still a chance of GM going bankrupt is shocking," said Takashi Ushio, head of the investment strategy division at Marusan Securities.
Britain's Nationwide Building Society said it had acquired struggling Scottish lender Dunfermline Building Society under a process conducted by the Bank of England.
Emerging stocks .MSCIEF lost 4 percent.
U.S. crude oil fell 3.4 percent to $50.58 a barrel.
The June bund futures rose 50 ticks.
The yen rose 1.9 percent to 96.17 per dollar. The euro was down a third of a percent at $1.3179 while the dollar .DXY rose 0.6 percent against a basket of major currencies.
G20 FOCUS
Investors are looking to this week's G20 summit to see if the leaders could bolster confidence in the equity market, which is on track for its biggest monthly gain in nearly 9 years even despite Monday's losses.
The Financial Times newspaper, quoting a draft communique, said the G20 leaders hope to restore global growth by the end of 2010 but much depends on when the United States pulls out of its economic tailspin.
