World stock markets tumbled yesterday as gloomy economic and political news around the globe sent investors scrambling for the haven of bonds.

The US Cruise missile strikes on Afghanistan and Sudan, the crisis talks in Russia, and the growing feeling that some Latin American countries would be next to slide into crisis ensured that much of the gains made by share prices earlier in the week were eroded.

The Latin American worries centred on the potential for currency devaluations. Venezuela, speculators' target on Thursday, said it would allow the bolivar to fluctuate more freely in its pre-determined range. There were fears that the Brazilian currency would come under pressure and its stock market was suspended briefly after falling 10 per cent.

The Canadian dollar fell to a record low of 64.86 US cents.

The Russian stock market fell 5.6 per cent, as a debate in parliament underlined the hostility to the government's management of the economic crisis. Rumours circulated that Western investment banks had suffered heavily in the market slide.

In Germany, where the banking system is particularly exposed to Russia, the DAX index dropped 296.16, or 5.4 per cent, to 5,190.6 and is now more than 1,000 points below its peak recorded a month ago. Madrid fell 5 per cent on concerns over Spain's exposure to Latin America.

On Wall Street, the Dow Jones Industrial Average was more than 280 points lower at one stage, and by early afternoon in New York it was 210.3 points down at 8,401.06. It closed down 8533.65, down 77.76, a fall of 0.9 per cent, after a late recovery. However the more broadly based Nasdaq market, dominated by the major technology stocks, fell to 1797.63, a drop of 34.82, or 1.9 per cent.

In London, the FTSE 100 index shed 190.4 points, or 3.4 per cent, to close at 5,477.

With the world appearing to be a risky place, investors did what they often do in times of turmoil buy bonds.

The benchmark 30-year US Treasury bond climbed 1 23/32 to 101 15/32, sending the yield falling to 5.4 per cent, the lowest level since the bonds were first issued in 1977. In Germany, the yield on the 10-year bund contract hit 4.22 per cent, its lowest since the second World War.

Pressure on emerging market currencies intensified amid signs the deep Russian financial crisis has proven to be the last straw for some investors with funds dedicated to high-yield markets.

Central and Eastern European currencies, including the Czech crown and Polish zloty, all weakened further during the session.

Ukraine's hryvnia traded 3.6 per cent below its central bank target band while the Mexican peso and South African rand also lost more ground. Argentine and Brazilian debt markets suffered sharply and dealers said Turkish central bank intervention had become more aggressive to maintain lira targets.

Emerging Asian units spoiled a week of relative stability in that region on Friday and reversed a chunk of recent gains.