The shift is also emblematic of the strains plaguing the US economy. Fearful corporations and investors have been socking away cash in their bank accounts rather than put it into even the safest investments. The giant bank, which specializes in handling funds for financial institutions and corporations, will begin assessing a fee next week on customers that have been flooding the bank with dollars, Bank of New York told clients in a note reviewed by The Wall Street Journal. The bank had $162.5 billion in deposits as of March 31.

The decision won't affect individual savers, who already are stuck with near zero interest rates as the Federal Reserve keeps rates low to support a soft economy. But it is a glaring sign that corporate executives, bank leaders and money-market fund managers are fleeing from risk and hoarding cash as the recovery threatens to peter out.

Holding cash comes at a cost to banks. Bank of New York and others pay fees of about 0.10% to the FDIC to insure their deposits, said people familiar with the matter. Given the size of recent deposits and the flows in and out of money-market funds, the charges could run into the millions of dollars. Huge deposit flows pose another problem for banks: They force banks to hold increasing amounts of capital, which they are loath to do because doing so depresses profits - which are already under pressure with a slow economy and rising regulatory demands.

Following the biggest decline since the financial crisis for both the S&P 500 index and US Treasury yields, the MSCI Asia Pacific index dropped 3.8 per cent, down more than 10 per cent from its May peak. Japan's Nikkei 225 Stock Average plunged 3.8 per cent to its lowest levels in more than four months. South Korea's Kospi Composite index fell 3.5 per cent, plumbing its lowest intraday levels since March. Australia's S&P/ASX 200 declined 3.8 per cent to a two-year low.

Investors are becoming increasingly concerned about the health of the global economy and worried that governments' attempts to tackle fiscal difficulties - particularly in Europe as sovereign debt contagion spreads to Italy and Spain - will only exacerbate the slowdown. "The past week's market downdraft has been associated, above all, with growing evidence that the second-quarter global 'soft patch' is not giving way to a third quarter rebound as quickly as might have been hoped," Barclays Capital said in a note to clients.

Investors are focusing on the US jobs report to gauge the state of the US economy. This week's worldwide manufacturing and service sector surveys have shown waning activity and hopes are not high that Friday's sentiment-setting US non-farm payrolls numbers will break the cycle of disappointing data. "The US economy stands at the forefront of market concerns about growth. If the July employment report ratifies the view that the US recovery remains barely above stall speed, there is more selling to be done," BarCap said.

The turmoil in the markets was kicked off by a steep fall in the yen after Tokyo intervened on Thursday to weaken the currency in the latest move by a central bank to combat the impact of market turmoil. The falls were accelerated by news that the European Central Bank would return to the market to buy bonds issued by troubled debtor nations.

He also said governments should rapidly re-assess the European Financial Stability Fund (EFSF) to reduce the risk of contagion in the eurozone. It is being reported that the European Central Bank has been buying bonds. Sources quoted by Reuters said that the bonds being bought were those issued by Portugal and the Irish Republic - crisis-hit countries who have found it more expensive to borrow on the open markets - and that the ECB had no plans to buy any other bonds.

By late afternoon, the main stock markets across Europe were all down by more than 2%. London's FTSE 100 was down 2.8%, while the Cac 40 in Paris was 2.4% lower. Frankfurt's Dax dropped 3.2%, and the Dow, the main US market, was down 2%.

Jonty Bloom, Business correspondent, BBC News comments - "Greece, Ireland and Portugal are one thing, but as President Barroso has said in his letter, the crisis is now moving from the periphery of the eurozone. Spain and Italy are of a different size and importance altogether; things are getting very serious and very close to home. The eurozone has tried to draw lines in the sand before now, the latest one only two weeks ago, and they have all failed to stop the markets."

"Not enough money, few details, a lack of urgency and coordination have all failed to reassure. The eurozone desperately needs to do something to change that soon and a scheme that lasts longer than a fortnight would be a nice start."

The FTSE 100 fell 133.88 points to 5584.51, its biggest drop in a single day since November 16, wiping 35 billion pounds off the value of the market. In four successive days of trading falls, investors have lost 65 billion pounds, with the FTSE 100 at its lowest level since November 30 last year and down 7.1 per cent this year. Any investor who had put their full ISA allowance of 10,680 pounds in a FTSE 100 tracker fund at the start of the tax year would be nursing losses of 220 pounds.

Fears that the US economy was heading into recession and the ongoing crisis in the eurozone have erased $2 trillion of value from world stock markets in the past week. Amid increasing nervousness about the chances of a fresh recession and its impact on consumers, the price of gold rose again. It came as Robert Chote, the head of the Office for Budget Responsibility, the Government's fiscal watchdog, all but admitted that the official growth forecast for this year of 1.7 per cent, announced in George Osborne's March Budget, would be missed and that current growth could be relatively weak.

Yesterday's slump followed weak economic data from America's key services sector, which came hard on the heels of Tuesday's shock downturn in US consumer spending. "The market sentiment is on apocalypse level," said Peter Buergler, a trader at Luzerner Kantonalbank in Switzerland. "Opinions are resurfacing that the US could possibly slide into a recession." Experts also fear that America could yet lose its AAA credit rating - despite President Barack Obama finally pushing through the deal to raise its $14.3 trillion debt ceiling.

Recession fears in the US led to talk that its Federal Reserve may attempt to kick-start the economy and get consumers spending again. "I believe the Fed is dusting off contingency plans if the economy does not improve," said Peter Fisher, of BlackRock fund managers. The slowing American economy has been mirrored in weak service sector data from Asia and Europe. "It's not just the US, it's the whole world," said Uri Landesman, of Platinum Partners in New York. "I'm having trouble remembering the last good data point."

"The liberals will escape or be killed," the son, Seif al-Islam el-Qaddafi, vowed in an hourlong interview that stretched past midnight. "We will do it together," he added, wearing a newly grown beard and fingering Islamic prayer beads as he reclined on a love seat in a spare office tucked in a nearly deserted downtown hotel. "Libya will look like Saudi Arabia, like Iran. So what?"

The leading Islamist whom Mr Qaddafi identified as his main counterpart in the talks, Ali Sallabi, acknowledged their conversations but dismissed any suggestion of an alliance. He said the Libyan Islamists supported the rebel leaders' calls for a pluralistic democracy without the Qaddafis. But the interview nonetheless offered a rare glimpse into the defiant, some say delusional, mentality of the Qaddafi family at a time when they have all but completely retreated from public view under the threat of a NATO bombing campaign, now five months old, and a six-month rebellion.

On one level, Mr Qaddafi's avowed embrace of the Islamists represents a sharp personal reversal for a man who had long styled himself as a cosmopolitan, Anglophile advocate of Western-style liberal democracy. He continues to refer to the Islamists as "terrorists" and "bloody men," and says, "We don't trust them, but we have to deal with them." But it may also be simply a twist on an old theme, a new version of the Qaddafi argument that by assisting the rebels the Western intervention could usher in a radical Islamist takeover. In a further taunt to the West, he suggested that the Qaddafis would even help the Islamists stamp out the liberals.

Rostam Ghasemi, head of the Khatam al-Anbia military and industrial base, was one of four ministers nominated by president Mahmoud Ahmadinejad to join his cabinet last week and approved by Iran's conservative-dominated parliament. Ghasemi is currently subject to US, EU and Australian sanctions and his assets have been blacklisted by US Treasury and western powers. He took 216 votes from the 246 deputies present in the 290-seat parliament.

Iranian state media interpreted the vote as a reaction by Iran's parliament to international sanctions against the country, especially those which have targeted the revolutionary guards and the country's nuclear programme. "The clever and decisive vote of Iranian MPs for engineer Ghasemi to become the oil minister is a meaningful and crucial response to the attacks against the guards from the west's media empire," said Ramedan Sharif, the head of the revolutionary guards public relations' unit, in quotes carried by Iran's semi-official Fars news agency.

The appointment of Ghasemi as Iran's oil minister automatically makes him the head of Opec which has a crucial role in determining oil prices. As its second-largest crude oil exporter, Iran took the presidency of Opec after 36 years last October and Ghasemi's position will give the revolutionary guards a unique opportunity to influence an international organisation.

Without action, this new crisis of state competence could soon become just as damaging as its recent financial predecessor. This week's US debt deal, along with the prospect of debate on fiscal solutions in the run-up to the 2012 elections, provides some room for optimism. But America's fiscal problems have deep roots. The recession of 2007-09 stemmed from the unprecedented bust in the housing market, driven by reduced lending standards and propelled by congressional pressures on private lenders and the reckless expansions of Fannie Mae and Freddie Mac.

In the aftermath of the debt ceiling agreement there will be calls for further stimulus for America's economy. This would be a grave mistake. In the financial turmoil of 2008, bail-outs by the US and other governments were unfortunate, but necessary. However, the subsequent $800 billion American stimulus package was largely a waste of money that sharply enlarged the fiscal hole now facing our economy.

The raucous debt-ceiling debate represents a good start in forging a serious long-term fiscal plan. Substantial additional progress will be needed, sadly much of which will probably have to await the outcome of the next US election. Yet progress must be made - or the impending crises of governments, signalled by possible downgrades of US debt, will make the 2008-09 recession look mild.

Treasury borrowing jumped Tuesday, the data showed, immediately after President Barack Obama signed into law an increase in the debt ceiling as the country's spending commitments reached a breaking point and it threatened to default on its debt. The new borrowing took total public debt to $14.58 trillion, over end-2010 GDP of $14.53 trillion, and putting it in a league with highly indebted countries like Italy and Belgium.

Public debt subject to the official debt limit - a slightly tighter definition - was $14.53 trillion as of the end of Tuesday, rising from the previous official cap of $14.29 trillion a day earlier. Treasury had used extraordinary measures to hold under the $14.29 trillion cap since reaching it on May 16, while politicians battled over it and over addressing the country's bloating deficit.

The official limit was hiked $400 billion on Tuesday and will be increased in stages over the next 18 months. The last time US debt topped the size of its annual economy was in 1947 just after World War II. By 1981 it had fallen to 32.5 percent. Ratings agencies have warned the country to reduce its debt-to-GDP ratio quickly or facing losing its coveted AAA debt rating. Moody's said Tuesday that the government needed to stabilize the ratio at 73 percent by 2015 "to ensure that the long-run fiscal trajectory remains compatible with a AAA rating."

Last week's events on Capitol Hill in the US were very damaging. After we abandoned the gold standard, the dollar is now the globe's reserve currency - and US politicians decided to play a game of chicken with the debt ceiling. Their behaviour verged on the shameful.

The fact that an 11th hour deal was done and the ceiling was raised is a relief, but the process shattered trust and confidence in US politicians.

There is also an uncanny correlation between the gold price and the US debt ceiling. Over the past 30 years, the gold price has tracked the ceiling whenever it has been raised.

The US economy is also flat lining, with slower growth now expected - confidence in the country evaporated overnight and a frantic hour of trading on Wall Street sent the Dow Jones Industrial Average on its worst run since the financial crisis, falling for the eighth successive day.

This gloom has also raised the prospect of more money printing by the Federal Reserve. QE3 is not a certainty, but it is now more likely than it was even last week. This will further debase the value of the dollar and will cause even more investors to flee to the safe-haven currency of gold.

Prime Minister Naoto Kan has recently said the country must shift towards alternative energy sources. Meanwhile Japan is facing shortages of electricity because two-thirds of nuclear reactors are offline. Local communities are refusing to give permission for them to be switched back on after routine maintenance.

Our correspondent says confidence has been further shaken by revelations that a power company had instructed its employees to pose as ordinary members of the public to send emails backing restarts to a television debate on nuclear safety. The sackings came a day after Japan's parliament approved a plan to set up a new fund to help the Tokyo Electric Power Company (Tepco) compensate people affected by the crisis.

About 80,000 people living within 20km (12 miles) of the Fukushima plant have been forced to abandon their homes. Farmers and others business owners further afield have been ruined. As a result, claims are expected to run into billions of dollars. At the Fukushima plant itself, workers are still trying to bring the reactors under control by January at the latest. Earlier this week, Tepco said hotspots had been discovered on an exhaust pipe from the buildings, showing the highest levels of radiation recorded since the crisis began.

It found that Italy will not avoid default unless it sees an unlikely big jump in economic growth. However, it said, "there is a real chance that Spain may avoid default". Even though Italy has managed to run tight budgets, and has vowed to eliminate its deficit by 2014, the economy needs a significant boost in growth. But its economy grew by just 0.1% in the first quarter of 2011 and further growth is expected to remain sluggish.

On Wednesday, Italian Prime Minister Silvio Berlusconi addressed parliament, saying the economy was "strong" and the nation's banks "solvent". But many economists believe that the eurozone's third largest economy risks being engulfed in the debt crisis. In a report published on Thursday, the CEBR calculated that Italy's debt would rise from 128% of annual output to 150% by 2017 if bond yields stay above the current 6% and growth remains stagnant.

The conditions in Spain are better because its debt is much lower. Even under the "bad" scenario, Madrid's debt ratio would climb to no higher than 75% of national output. "Fingers crossed but there is a real chance that Spain may avoid default and debt restructuring, unless it gets dragged down by contagion," Mr McWilliams said.

Marvel editor-in-chief Axel Alonso said the new web-slinger "speaks to our rich cultural heritage" in the US. Parker died in Ultimate Spider-Man Issue 160 in June during a fight with his bitter enemy, Green Goblin. Like Parker, Morales is a geeky, working-class teenager from the boroughs of New York City. Morales lives with his black and Latino parents in ethnically diverse Brooklyn, while Parker was white and raised by his aunt and uncle in a mainly white neighbourhood in Queens.

"Going into this we knew we wanted to make a statement about the 21st century," said Alonso. The Marvel editor-in-chief, whose mother was from England and father from Mexico, said he cried when Barack Obama was elected president "partly because he was African-American but largely because of the fact that he was mixed race".

Alonso added that when Morales "peels off his mask now, he's going to have a very different look and he's going to resonate emotionally with all sorts of new readers". He told AFP news agency Spidey writer Brian Michael Bendis is Jewish and has two adopted children from Africa. "So I know for him it was definitely personal," Alonso said.

The 83-year-old is being tried with his sons, who also deny charges against them, ex-Interior Minister Habib al-Adly and six other former officials. Mr Mubarak was forced from office by mass demonstrations in February. The charge of ordering the killing of protesters carries the death penalty.

John Simpson, BBC World Affairs Editor, writes from Cairo:-

"The way the courtroom was arranged, with a heavily-barred dock set in a distant corner of the huge room, meant that scarcely anyone could really see Hosni Mubarak or the co-accused, including his two sons. But a well-placed television camera in the court did manage to pick him up and everyone could see the extraordinary pictures. Mr Mubarak was not standing up but lying on a bed, his eyes as sharp and shrewd as ever, making occasional gestures and thoroughly aware of what was going on.

At the sight of this, there was first silence in the packed courtroom, and then an audible intake of breath. I had the impression that it came not just from the journalists but from the rows of lawyers, and perhaps from the three judges themselves. For the first time ever an Arab country had, of its own volition - not after a foreign invasion as in Iraq - put its former ruler on trial."

The offer was made by senior Chinese military leaders to visiting Pakistan Army's Chief of General Staff, Lieutenant General Waheed Arshad, the Urdu daily Jang reported on Saturday, quoting defence sources. The J-10B fighters are equipped with the latest weapons and Pakistan will be the first country, after China, to have these advanced aircraft, it said.

"It is going to be a long week," said Jim Maguire Jr, a NYSE floor trader at EH Smith Jacobs. "The bid is not here in the market." The selloff accelerated into the close as volume jumped well above average. The fall was broad-based, with four stocks falling for every one rising on the New York Stock Exchange. The index also broke through its 2-1/2 year uptrend line from its bear market low in March 2009. Thursday was the index's worst day in a year.

Investors seemed to find little to cheer after the US Senate agreed to a deal to raise the debt ceiling because of the possibility it will not stave off a downgrade of the US government's triple-A rating. "Investors have made the shift from Washington to what I'm calling economic realities," said Fred Dickson, chief market strategist at The Davidson Companies in Lake Oswego, Oregon.

On Monday a survey on US factory activity suggested manufacturing stalled in July. The survey followed similarly weak reports from Asia and Europe and came after US growth calculations were sharply cut for the first half of the year. The government's key monthly jobs report for July is due on Friday and will be closely watched by investors.

European debt problems returned to the forefront after French bank BNP Paribas SA (BNPP.PA) took a $768.3 million write-down linked to Greece's debt woes.