At least 140 flights have been cancelled and rail services disrupted. Muifa brushed past Shanghai on Sunday bringing high winds and heavy rain, but did not make its expected landfall. Meteorologists, who earlier predicted Muifa would reach land in Zhejiang province or Shanghai at the weekend, said Muifa would probably make landfall near Qingdao city, in Shandong province, early on Monday.

China's National Marine Environmental Forecasting Centre has upgraded its warning to a red alert - the highest possible - for shipping in the East China sea. Muifa has already battered the Philippines - where it caused flooding - Taiwan and Japan's southern island of Okinawa, which was hit by blackouts. The typhoon is being described as the most serious to threaten the region since 2005, when Typhoon Matsa killed 19 people, including seven in Shanghai.

That means the world's stock of top-quality security against which loans can be raised has been drastically shrunk. It means also that governments everywhere, including Britain, will find major investors such as the Chinese reluctant to buy sovereign debt, preferring to put their money into hard assets such as commodities, agricultural land and mines.

This weekend's US downgrade by Standard & Poor's sent shockwaves around the world, despite being not entirely unexpected. As a rule of thumb, countries stand to lose the coveted triple-A credit rating once their national debt comes close to or exceeds 100 per cent of annual national output. The 11th-hour deficit-reduction deal struck by Congress a week ago failed to avert this prospect, although there had been hopes that America's unique economic clout could make it an exception to the downgrade rule. These hopes have now been dashed.

At any time, the downgrade would have been a huge event. But coming at a time of turmoil in the eurozone, with the sovereign debt of over-borrowed members of the single currency coming under sustained attack, S&P's move could tip markets worldwide into uncontrollable chaos. Pressure was mounting last night on France, the current G7 president, to call an emergency meeting. Italy, one of the countries under attack, is pressing for such a crisis summit.

The chilling possibility of the largest bank in Italy, UniCredit Banca, suffering a similar collapse if a bailout is not implemented comes as Silvio Berlusconi already faces an increasingly dangerous national economic situation. In Britain, a senior Government source described the position of the two banks as 'perilous', although an official Treasury spokesman declined to comment. Should either bank collapse, British customers with deposits of up to about £85,000 would be protected by the Financial Services Compensation Scheme.

As ministers of the G7 nations - Britain, France, Italy, Germany, Japan, the US and Canada - prepare to meet to discuss the mounting euro crisis, the French and Italian governments are believed to be standing ready to rescue the banking giants. But it is thought the mechanisms they have in place to rescue financial institutions are less developed than those in Britain, which was far worse affected by the credit crunch in 2008 and as a result put in place fuller contingency plans.

The merest hint a major bank might fall is likely to reignite panic tomorrow in the stock market, which is already feared to react badly to the credit downgrade of the US by rating agency Standard & Poor's. Last night Chancellor George Osborne, whose Treasury officials have 'war-gamed' various scenarios ahead of the markets opening, was due to discuss the crisis with Christine Lagarde, head of the International Monetary Fund (IMF).

Experts fear that if any single bank is seen to be in trouble, all lending could freeze up in the resultant climate of fear, with devastating consequences. It was a similar situation which led to the run on Northern Rock in 2007 that required a Government bailout. The European Central Bank has already reported banks unwilling to trust each other with overnight funds.

The very grave financial crisis that has hung over Europe ever since the banking collapse of three years ago has taken a sinister turn, with the most dreadful and sobering consequences for those of us who live in European democracies. The events of the past few days have been momentous: the eurozone sovereign debt crisis has escaped from the peripheries and spread to Italy and Spain; parts of the European banking system have frozen up; US Treasuries have been stripped of their AAA rating, which may be the beginning of a process that leads to the loss of the dollar's vital status as the world's reserve currency.

There have been warnings that we may be in for a repeat of the calamitous events of 2008. The truth, however, is that the situation is potentially much bleaker even than in those desperate days after the closure of Lehman Brothers. Back then, policy-makers had at their disposal a whole range of powerful tools to remedy the situation which are simply not available today.

First of all, the 2008 crisis struck at the ideal stage of an economic cycle. Interest rates were comparatively high, both in Europe and the United States. This meant that central banks were in a position to avert disaster by slashing the cost of borrowing. Today, rates are still at rock bottom, so that option is no longer available.

Second, the global situation was far more advantageous three years ago. One key reason why Western economies appeared to recover so fast was that China responded with a substantial economic boost. Today, China, plagued by high inflation as a result of this timely intervention, is in no position to stretch out a helping hand.

But it is the final difference that is the most alarming. Back in 2008, national balance sheets were in reasonable shape. In Britain, for example, state debt (according to the official figures, which were, admittedly, highly suspect) stood at around 40 per cent of GDP. This meant that we had the balance sheet strength to step into the markets and bail out failed banks. Partly as a result, national debt has now surged past the 60 per cent mark, meaning that it is impossible for the British government to perform the same rescue operation without risking bankruptcy. Many other Western democracies face the same problem.

The consequence is terrifying. Policy-makers find themselves in the position of a driver heading down the outside lane of a motorway who suddenly finds that none of his controls are working: no accelerator, no brakes and a faulty steering wheel. Experience, skill and a prodigious amount of luck are required if a grave accident is to be averted. Unfortunately, it is painfully apparent that none of these qualities are available: Western leaders are out of their depth.

Wake up: the eurozone is very close to collapse. It will come as no surprise if some Italian and Spanish banks are forced to close their doors in the course of the next few weeks. Indeed, British holidaymakers on the Continent should be advised to take care: hold only the minimum of the local currency, and treat with especial suspicion euro notes coded Y, S and M (signifying they were printed in Greece, Italy and Portugal respectively). Take plenty of dollars with you, which shopkeepers will certainly accept if there is a run on the banks, or if euros suddenly cease to be legal currency. The precautions may not prove necessary, but there is no point in taking risks.

Lowering the nation's rating to one notch below AAA, the credit rating company said "political brinkmanship" in the debate over the debt had made the US government's ability to manage its finances "less stable, less effective and less predictable." It said the bipartisan agreement reached this week to find at least $2.1 trillion in budget savings "fell short" of what was necessary to tame the nation's debt over time and predicted that leaders would not be likely to achieve more savings in the future. "It's always possible the rating will come back, but we don't think it's coming back anytime soon," said David Beers, head of S&P's government debt rating unit.

The decision came after a day of furious back-and-forth debate between the Obama administration and S&P. Treasury Department officials fought back hard, arguing that the firm's political analysis was flawed and that it had made a numerical error in a draft of its downgrade report that overstated the deficit over 10 years by $2 trillion. Officials had reviewed the draft earlier in the day.

"A judgment flawed by a $2 trillion error speaks for itself," a Treasury spokesman said Friday night. THE DOWNGRADE TO AA+ WILL PUSH THE GLOBAL FINANCIAL MARKETS INTO UNCHARTED TERRITORY after a volatile week fueled by concerns over a worsening debt crisis in Europe and a faltering economy in the United States. A downgrade could also have a cascading series of effects on states and localities, including nearly all of those in the Washington metro area. These governments could lose their AAA credit ratings as well, potentially raising the cost of borrowing for schools, roads and parks.

But the exact effects of the downgrade won't be known until at least Sunday night, when Asian markets open, and perhaps not fully grasped for months. Analysts say the initial effect on the markets could be modest because they have been anticipating an S&P downgrade for weeks.

S&P's downgrade served as an indictment of the gridlock that sent the nation to the edge of defaulting on its debt obligations. It is also striking in part because it reflects the tremendous power of a small group of financial analysts employed by a New York company - part of McGraw-Hill. Credit-rating companies' reputations were sullied during the financial crisis.

The company said the United States financial position was diverging from that of other AAA countries, including Canada, France, Germany and Britain.

It is part of the mainstream Protestant Church in the Netherlands (PKN), and the service is conventional enough, with hymns, readings from the Bible, and the Lord's Prayer. But the message from Mr Hendrikse's sermon seems bleak - "Make the most of life on earth, because it will probably be the only one you get. Personally I have no talent for believing in life after death," Mr Hendrikse says. "No, for me our life, our task, is before death."

Nor does Klaas Hendrikse believe that God exists at all as a supernatural thing. When it happens, it happens down to earth, between you and me, between people, that's where it can happen. God is not a being at all... it's a word for experience, or human experience." Mr Hendrikse describes the Bible's account of Jesus's life as a mythological story about a man who may never have existed, even if it is a valuable source of wisdom about how to lead a good life.

His book Believing in a Non-Existent God led to calls from more traditionalist Christians for him to be removed. However, a special church meeting decided his views were too widely shared among church thinkers for him to be singled out. A study by the Free University of Amsterdam found that one-in-six clergy in the PKN and six other smaller denominations was either agnostic or atheist.

The Reverend Kirsten Slattenaar, Exodus Church's regular priest, also rejects the idea - widely considered central to Christianity - that Jesus was divine as well as human. "I think 'Son of God' is a kind of title," she says. "I don't think he was a god or a half god. I think he was a man, but he was a special man because he was very good in living from out of love, from out of the spirit of God he found inside himself." Mrs Slattenaar acknowledges that she's changing what the Church has said, but, she insists, not the "real meaning of Christianity". She says that there "is not only one answer" and complains that "a lot of traditional beliefs are outside people and have grown into rigid things that you can't touch any more".

Documents were taken from the Milan offices of the two agencies by Italian prosectuors as part of an investigation aimed at "verifying whether these agencies respect regulations as they carry out their work," according to Carlo Maria Capistro, the head of the prosecutors office in the southern Italian town of Trani which is heading the action.

The raids come at a time of rising tensions between ratings agencies and eurozone governments. The agencies are blamed by some for exacerbating the region's sovereign debt crisis by downgrading many of the indebted countries. Moody's and S&P dimissed the investigation and said it was without foundation.

"S&P considers the allegations being investigated are without any merit. We will vigorously defend our actions, our reputation and that of our analysts," said the agency. Moody's said: "Moody's believes this investigation is without merit and is confident we have violated no laws."

Everything about Riyad al-Maliki is gray - his suit, his hair, his moustache and even his skin. "You can tell how tired I am by looking at my face," says Maliki. The 56-year-old has been the foreign minister of the Palestinian Autonomous Authority for the last four years, during which he has traveled almost constantly to advocate for Palestine. He has circled the globe many times, covering hundreds of thousands or perhaps even millions of miles. He gave up counting the miles long ago. Most recently, he was in Juba, the capital of South Sudan, the 193rd member of the United Nations. The trip was intended as a reminder to the world that there is still another territory that deserves independence.

"It took six days from the time they submitted their application to the UN until they were granted membership," he says. "Six days! And how much longer are we supposed to wait?" South Sudan, East Timor and Macedonia - the youngest states in the international community - are currently Maliki's points of reference. "What about us?" he asks. "We have fulfilled all the requirements. We have institutions, government agencies and a civil society. It's all there."

What they don't have is a state. The Palestinians have been negotiating with Israel for 20 years now, but the mutual blockade seems insurmountable. The last attempt to achieve a peace agreement failed in October 2010. But before that US President Barack Obama said: "When we come back here next year, we can have an agreement that will lead to a new member of the United Nations - an independent sovereign state of Palestine." A year has passed, and now the Palestinians want to see that promise kept.

Bundesbank chief Weidmann and Stark, who heads the ECB's economics department, are ECB heavyweights whose opposition to firing up the programme after 18 weeks of inactivity could restrict any push to broaden purchases to include Italy's bonds. Traders said the ECB bought Irish and Portuguese government bonds after deciding on Thursday to revive the programme, a move analysts said was misguided.

"If that is the ECB response, it's like the fire brigade responding but driving to the wrong place," said Holger Schmieding, economist at Berenberg Bank. "It doesn't douse the fire and harms the credibility of the fire brigade." Italy, whose 10-year government bond yields rose above their Spanish equivalent on Friday, is now in the eye of the euro zone storm and the size of its economy - it is a member of the G7 club - means the whole single currency project is tied to its fate.

European Commissioner Olli Rehn said he thought the movements were "unjustified" and "incomprehensible". There are also concerns about the weak recovery in Europe and particularly in the United States. Speaking to reporters, Mr Rehn, who is Economic and Monetary Affairs Commissioner, tried to assure markets by saying the movements were "not justified by the economic fundamentals", partcularly in Italy and Spain, the latest focus of investors concerns.

"The political will to defend the euro should not be underestimated," he added.

Robert Peston - Business editor, BBC News, comments - "Just like the awakening in 2007 to the idea that many of the housing loans and associated financial products were worthless, so there is a growing fear that a number of financially overstretched governments, especially in the eurozone, will not be able to repay their debts in full"

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.