Markets tumble on recession fears

By Claudia Parsons

NEW YORK (Reuters) - Gloomy economic data and warnings from the U.S. Federal Reserve that hard times were still to come wiped out two days of relative optimism about the credit crisis and sent markets into free-fall on Wednesday.

The Dow Jones industrial average .DJI ended down 733 points or 7.87 percent, and the S&P 500 index .SPX lost 9 percent -- their worst one-day percentage declines since October 1987. The losses reversed Monday's record surges that had been sparked by optimism about bank bailouts. .N

Fed Chairman Ben Bernanke warned that credit market turmoil posed a "significant threat" to an already weak economy as new data reinforced signs of further slowing.

European shares shed 6 percent and U.S. crude fell more than $4 a barrel to a 13-month low of $74.54.

France, Britain and Germany led calls for an overhaul of the world financial system to prevent a repeat of the worst credit crisis since the Great Depression.

The White House said leaders of the Group of Eight nations were expected to meet on the crisis by the end of the year.

The United States reported its biggest monthly decline in retail sales in more than three years, and Europe offered negative economic data and outlooks of its own.

Governments around the world have pledged $3.2 trillion (1.85 trillion pounds) in emergency measures, including taking stakes in banks to help them stabilise, rallying world markets on Monday.