LONDON (AP) — World stock markets took a beating on Monday after a report showed U.S. companies stopped hiring in August, reviving fears that the world's largest economy is heading back into recession.
The lack of hiring in the U.S. last month surprised economists, who were expecting about 93,000 jobs to be added. Previously reported hiring figures for June and July were revised lower. The unemployment rate held steady at 9.1 percent — it has been above 9 percent in all but two months since May 2009.
The jobs crisis has led President Barack Obama to schedule a major speech Thursday night to propose steps to stimulate hiring.
Traders waited for signs that the U.S. Federal Reserve might take action at its September meeting to support the economy — perhaps a third round of bond purchases, dubbed quantitative easing III or QE3, analysts said.
"Right now the possibility has increased," said Linus Yip, a strategist at First Shanghai Securities in Hong Kong. "I think they have to do something. The markets are expecting QE3."
Amid the uncertainty, traders pulled out of any risky investments — such as stocks, particularly financial ones, the euro and emerging market currencies — to pile into safe havens: U.S. Treasuries, the dollar, the Japanese yen and gold.
European shares slumped in early trading. Britain's FTSE 100 dropped 2.9 percent to 5,136.36. Germany's DAX fell 4.7 percent to 5,280.13, and France's CAC-40 tumbled 4.6 percent to 3,003.64.
Markets in the U.S. were closed for the Labor Day holiday.
Banking stocks were among the hardest hit after the U.S. government on Friday sued 17 financial firms for selling Fannie Mae and Freddie Mac billions of dollars worth of mortgage-backed securities that turned toxic when the housing market collapsed.
Among those targeted by the lawsuits were Bank of America Corp., Citigroup Inc., JP Morgan Chase & Co., and Goldman Sachs Group Inc. Large European banks including The Royal Bank of Scotland, Barclays Bank and Credit Suisse were also sued.
