Investors edgy as US stocks fall

US stock markets sank on fears the bailout of insurance giant AIG would not be enough to dispel the gloom engulfing the financial world.

Finance firms fell with Goldman Sachs 15% lower while Morgan Stanley saw shares 25% down in afternoon trade.

Investors were unnerved by recent dramatic events, including Lehman Brothers' demise, leading European indexes to end down.

The Dow Jones industrial average shed 2.1% having fallen more than 4%.

The FTSE 100 closed 2.2% lower while France's Cac 40 shed 2.1% and Germany's Dax shed 1.7%.

The global financial crisis In pictures

It has been a tumultuous week on financial markets, with significant changes in the financial landscape.

Key events on Wednesday included:

• Beleaguered HBOS in merger talks with Lloyds TSB after a steep fall in its share price
• US insurance giant AIG being bailed out by the US government
• Volatile stock markets as global investors remain nervous
• Trading on the Russian stock exchange being suspended
• Barclays snapping up key assets from Lehman Brothers after its bankruptcy

Finance shares globally were among the most volatile on Tuesday.

How big are these companies?

Top UK mortgage lender HBOS, which has faced heavy selling this week, had a rollercoaster ride.

HBOS shares fell some 50% before recovering after it emerged that it was in advanced talks to be taken over by Lloyds TSB.

But by close of trade HBOS was 19% lower, while Royal Bank of Scotland shed 10.4%.

I don't think anyone has got any or much confidence in market direction for more than a few days Darren Winder, Cazenove

Topsy-turvy trade

Trade is likely to remain rocky amid concern that financial system instability will continue after the dramatic events of the past few days.

"I don't think anyone has got any or much confidence in market direction for more than a few days," said Darren Winder, a strategist at Cazenove.

AIG's bail-out follows the collapse of US investment bank Lehman Brothers, which caused share prices to plummet across the world's financial markets.

The White House on Wednesday defended the takeover of AIG, saying: "You have a government that is willing to lead, act where appropriate, and govern to make sure that we limit broader financial harm to the economy," said White House press secretary Dana Perino.

Another investment bank, Merrill Lynch, has been sold off to Bank of America.

Russia's stock exchange suspended trade following steep falls in shares.

Asian shares had a mixed session. Stocks in Tokyo, Taipei, and Seoul all rose, although prices in Hong Kong, Shanghai and Australia lost ground.

Japan's Nikkei 225 index ended up 1.2% at 11,749.79, having risen by as much as 2.3% earlier in the day. The index had hit a three-year low on Tuesday.

Hong Kong's Hang Seng index ended down 3.6% at 17,637.19 points.