Japan's Nikkei index lost 275 points or 1.7%, to close at 16,013. Wall Street's Dow Jones had earlier finished Tuesday down 280 points or 2.1% to 13,042.

The latest share falls was caused by a major stock brokerage warning that the credit squeeze will hurt bank profits. Investor confidence was also hit by weak US consumer sentiment figures.

The Human Fertilisation and Embryology Authority will announce its decision next week on whether to give permission to UK laboratories to create the hybrid embryos to advance the understanding of genetic diseases.

The issue is controversial because it involves scientists taking an animal egg, removing its genetic material and putting DNA from a human cell into it. This can be used to create lines of stem cells which can then be made part of studies into incurable genetic diseases such as motor neurone disease. However, it has caused controversy as some campaigners and religious groups argue that it is unethical to mix human and animal cells in this way.

The move has prompted strong protests from some religious and anti-abortion groups that oppose any such research. Anti-embryo campaigners had said earlier this year it was appalling that the government had, in their view, bowed to pressure from 'a random collection of self-interested scientists'.

The Catholic Church has made clear its opposition. Bishops told the parliamentary committee scrutinising a draft bill to allow the research to go ahead, that they opposed the creation of any embryo solely for research - they believe that all life begins at conception. They said they were also anxious to limit the destruction of such life once it had been brought into existence.

In a submission to the committee, they said: 'At the very least, embryos with a preponderance of human genes should be assumed to be embryonic human beings, and be treated accordingly.'

About 20 people were injured in floods and storms which also killed hundreds of sheep and other animals in the Arab country, they said. At least 20 people were killed earlier this year and thousands driven from their homes by flooding in Yemen, one of the poorest countries outside Africa.

Dozens of people were evacuated from homes and cars and many roads closed because of rising flood waters and fallen trees after the Sunshine Coast was lashed with days of torrential rain, officials said. The dumping of more than 1,000 millimetres (40 inches) of rain on the Sunshine Coast has been attributed to a once-in-a-century weather event.

"They are very rare in August and the last one we can find was probably in the 1880s," the Australian Broadcasting Corporation was told.

Zalmay Khalilzad told the daily Die Presse the Middle East was now so disordered that it had the potential to inflame the world as Europe did during the first half of the 20th century.

"The (Middle East) is going through a very difficult transformation phase. That has strengthened extremism and creates a breeding ground for terrorism," he said in remarks translated by Reuters into English from the published German.

"Europe was just as dysfunctional for a while. And some of its wars became world wars. Now the problems of the Middle East and Islamic civilisation have the same potential to engulf the world," he was quoted as saying.

Heaven is an equal-opportunity destination, but to gain entry one needs a "passport" stamped with virtues such as humility, mercy and truth, says Benedict XVI.

THE PONTIFF ASKED: "WHAT IS MEANT BY THIS 'NARROW GATE'? WHY IS IT THAT MANY PEOPLE DO NOT SUCCEED IN ENTERING THROUGH IT? IS IT PERHAPS A PASSAGE THAT IS RESERVED ONLY FOR A FEW ELECT?"

The [Pope] said that the message of Christ is that everybody has an equal chance of entering through the narrow gate, "but it is 'narrow' because it is demanding, it requires commitment, self-denial and mortification of one's own egoism."

Christ invites all to heaven, he said, "but with one and the same condition: that of making the effort to follow him and imitate him, taking up one's cross, as he did, and dedicating one's life to the service of our brothers."

Benedict XVI makes the point that "we will not be judged on the basis of presumed privileges, but by our works."

"True friendship with Christ," he added, "is expressed by one's way of life: it is expressed by goodness of heart, with humility, meekness and mercy, love of justice and truth, sincere and honest commitment to peace and reconciliation."

The Pope adds, "This, we might say, is the 'I.D. card' that qualifies us as authentic 'friends'; this is the 'passport' that permits us to enter into eternal life."

After English breadmakers and Italian pasta makers, it is now the turn of French boulangers to put up prices of the country's staple - the baguette. With international wheat prices at a 10-year high, bakeries across France are expected to raise the price of the baguette by about 5 cents in the coming weeks.

The move comes after Italy's Association of Pasta Manufacturers announced last month that it would increase domestic pasta prices by 20 per cent, while Premier Foods, the UK maker of Hovis bread, said it was likely to pass on further rises in wheat prices.

Prices for agricultural commodities such as wheat, cocoa and coffee have risen sharply over the past year as severe droughts, rising consumption in developing countries and the increasing use of crops for biofuels lower supplies.

In Europe, wheat prices have nearly doubled from €130 ($177.8, £88) to €237 a tonne this year. In Chicago, wheat for December delivery surged to a record $7.54 (€5.50, £3.70) a bushel last week after Canada, the world's second-largest wheat exporter, warned output might be almost 20 per cent below last year's levels.

Bread plays an important role in the daily life of the French; many consume baked goods - baguettes, croissants, brioches - at least three times a day. Bread prices have been deregulated in France since 1978.

Barclays appears to have been responsible both for designing a complex fund that got Sachsen into difficulty and for helping to pull the plug on the bank by demanding margin calls in respect of another Sachsen investment.

Sachsen, a Saxony-based bank with assets of €68 billion (£46 billion) owned partly by the regional government, said last night that it was being taken over by Landesbank Baden-Württemberg (LBBW) after a previously attempted €17.3 billion bailout failed. LBBW is paying €300 million to €800 million for Sachsen and has taken the precaution of inserting a clause in the deal allowing it to walk away if further big losses emerge.

Meanwhile, last week Barclays made margin calls on a client, Synapse Investment Management, a credit hedge fund in which Sachsen has an estimated €200 million stake - almost the entire equity in the fund - and later seized some of its collateral.

The relationship between Barclays and Sachsen is thought to have been particularly close. The German bank's 2006 annual report features a double-page photo spread of Jane Privett, a BarCap director, quoted as saying that Sachsen Funding I generates "attractive returns without neglecting the security aspect".

Barclays is likely to come under pressure to spell out its sub-prime exposure, especially as it is in the middle of a share-based offer for the Dutch bank ABN Amro. Barclays shares have fallen from 745p in mid-July to 611p on Friday, cutting the value of its ABN bid.

Sources close to Barclays said that any SIV losses appeared minimal for it and that it should not be blamed for clients' difficulties since it was not responsible for picking assets in the funds or running them. It foresaw "little flowback" - continuing financial or legal liabilities. Barclays would in theory be obliged to make a statement only if the loss topped £700 million, a tenth of annual profits.

America's generals are at war, and not just with al-Qai'da and the resistance in Iraq. Now they are fighting among themselves about the best way forward in the ever-deepening tragedy of Iraq.

A virtual civil war has erupted as senior US generals disagree in public about whether to cut and run or stay the course. On the airwaves, the internet and in newspapers the argument is raging with commanders in the field coming to the point of insubordination with Pentagon generals.

A senior US commander in Iraq, Maj- Gen Rick Lynch, on Saturday publicly challenged Marine General Peter Pace, chairman of the joint chiefs of staff and the highest ranking soldier in the US, who is reportedly planning to advise President Bush to cut combat troops in Iraq during 2008 to below 100,000.

Maj-Gen Lynch, who commands 15,000 US and 7,000 Iraqi troops guarding the southern approaches to Baghdad, said a reduction in forces would be "a major step backwards". He said until the Iraqi army was ready to take over "in my battlespace ... I need the forces".

Iraqi police reportedly left when the Shia fighters arrived and began emptying the facility. According to witnesses, they made off with generators, computers, furniture and even cars, saying it was war booty - and were still in the centre yesterday evening.

The embarrassing episode, which comes as the British in Basra are preparing to move their remaining soldiers to the city airport as part of a planned withdrawal, once again highlights the strength of the militia in the city.

It further undermines Britain's hopes of a smooth transfer and gives the impression of a rout. Mr Sadr boasted in an interview with The Independent last week that the British had "given up" and were retreating because of the Iraqi resistance.

The MoD also tried to scotch any suggestion that the Americans were poised to send a stabilisation force to southern Iraq in the wake of a British pull-out. "There hasn't even been a decision as to when we leave Iraq so this proposal seems very unlikely," said the spokesman.

The MoD said Basra does not have the heavy fighting experienced in Baghdad and Iraqi forces are demonstrating that they can take the lead in the city.

Edward Cahill, 33, walked out of Barclays Capital following the collapse of investment schemes under his control worth millions of pounds. His disappearance has revived memories of the trader Nick Leeson, who infamously fled Barings Bank in 1995 after losing £830million of the firm's money, leading to its collapse.

Mr Cahill, who was known as "Captain Sensible" because he was considered a safe pair of hands, joined Barclays Capital in 2004, where he was European head of collateralised debt obligations - the parcelling up of loans and selling them on.

However, many of these multi-million pound financial packages are thought to have become worthless as a result of the credit crisis in the U.S. Mr Cahill's resignation at a time of general anxiety in the financial markets has led to speculation that the bank may have suffered heavy losses.

A Barclays Capital spokesman said the idea Mr Cahill was a new Nick Leeson "was just stuff and nonsense".

A source at the bank said: "He would never have been in a position to do anything like Leeson."

The move underlines the kingdom's growing concern about its oil installations after threats from al-Qaeda to attack facilities in the Gulf, as well as rising tensions between Iran and the US. The force already numbers about 5,000 personnel, a Saudi adviser said on Sunday.

The kingdom, which is the world's biggest oil exporter and has 25 per cent of the world's proven oil reserves, is investing an estimated $4bn-$5bn in the new equipment and the force. The force is expected to reach 35,000 within two or three years.

Saudi Arabia has a 75,000-strong army, an air force of 18,000, a navy of 15,500 and an air defence force of 16,000. Its oil installations are protected from within by 5,000 agents employed by Aramco, the state oil company. It has more than 80 oil and gas fields and an estimated 11,000 miles of pipeline.

Former Clinton Treasury Secretary Larry Summers, a strong proponent of free trade and globalization, is warning the U.S. could be heading into recession due to the ongoing sub-prime mortgage crisis. "It would be far too premature to judge this crisis over," Summers told the London Telegraph for today's edition. "I would say the risks of recession are now greater than they've been any time since the period in the aftermath of 9/11."

Traders are bracing for another week of uncertainty after the near breakdown of America's $2,200 billion market for commercial paper. Investors are said to be waiting to learn whether or not the Federal Reserve would succeed in stabilizing the market, the latest domino to fall in the spreading contagion from sub-prime debt.

Investors have suddenly lost trust in this form of debt, fearing it may be tainted by exposure to [collateralized debt obligations]," writes veteran journalist Ambrose Evans-Pritchard in the Telegraph. He notes stock markets rallied late last week on the belief the Fed would start to cut its key lending rate next month, and that the European Central Bank would refrain from further tightening.

The US states of Idaho and California have, like Greece, been hit by wildfires, while Ohio, already suffering from flooding, was hit by tornados that left hundreds of thousands with no electricity. Meanwhile, China, India and Romania have been suffering from severe flooding.

In the US, a mandatory evacuation was ordered for residents of more than 1,000 homes south of Ketchum in Idaho where a massive wildfire raged. And in California, a seven-week-old wildfire has been burning in Santa Barbara county and a recommended evacuation has been put into effect.

In Ohio, beleaguered residents were picking up the pieces after tornado-bearing thunderstorms knocked out power across the state. Powerful storms during most of the past week caused disastrous floods from south-eastern Minnesota to Ohio that were blamed for at least 18 deaths.

In China, the official Xinhua News Agency yesterday reported torrential rainstorms had triggered landslides and floods, killing at least 13 people.

In India, nearly 2,000 people have been killed by snake bites, drowning, diarrhoea and in house collapses since July when swollen rivers burst their banks, inundating huge areas in eastern India and Bangladesh. The death toll rose by 74 over the weekend.

Overnight rains also caused widespread flooding in Romania, when rivers overflowed, leaving about 1,400 people stranded in villages and forcing the evacuation of the 17th-century Sambata de Sus Monastery. The rain followed three days of unusually high temperatures of up to 40C (104F).

Skies cleared over Chicago as the storms moved east and south, while tornado warnings were issued for parts of Ohio. Storms have battered US states from Minnesota down to Ohio in the last week or so, killing at least 17 people. More than 650,000 customers in Illinois lost their power supply after a major storm on Thursday.

"There's so much flooding continuing from the rain and run-off from two days ago," said Mark Ratzer, a meteorologist with the National Weather Service. "That's going to take a while to recede," he told the Associated Press.

The states of Ohio, Wisconsin and Minnesota are cleaning up after their earlier flooding.