GLOBAL MARKETS - Shares fall as recession fears take grip

By Sitaraman Shankar

LONDON (Reuters) - Shares across the world fell for the second straight day on Thursday, pummelled by signs the world's biggest economies were headed for recession after a month of financial sector turmoil.

European stocks fell 3 percent by midday after Wall Street and Japan's Nikkei both suffered their worst one-day losses since the stock market crash of 1987, and the MSCI World stock index traded 3 percent lower.

U.S. stock index futures were up 1 percent higher, suggesting a pause in the haemorrhaging even as Citigroup and Merrill Lynch posted big third quarter losses.

Oil fell $1.70 a barrel, trading at less than half the record high of $147 a barrel it hit in July, as fears of a sharp fall in demand took grip, and the dollar gained as risk-weary investors sold higher yielding currencies, unwinding carry trades.

Sharp equity gains on the first two days of the week were quickly forgotten after dismal U.S. retail sales and the Beige Book report underlined concerns about the economy. Federal Reserve Chairman Ben Bernanke said it faced a "significant threat" from credit markets.

"The whole cliche of Wall Street arriving on Main Street is so true now, with recession in the U.S., the UK, Europe and probably Japan, and significant slowing elsewhere," said Bernard McAlinden, strategist at NCB Stockbrokers in Dublin.

"Things have rapidly changed on the real economy and that has implications for earnings," he said.

Handset maker and technology bellwether Nokia, eyed for clues as to how a global financial crisis has hit consumer spending, posted results that were below analyst expectations. But its outlook soothed worried investors.