Grim economic data from the UK and the eurozone, suggesting the world econ-omy was headed for recession and another round of interest rate cuts, more disappointing corporate news and a warning from the World Bank that international trade may contract in 2009 rocked global stock markets yesterday.

Wall Street stocks fell for the third consecutive session after Treasury Secretary Henry Paulson said the $700bn government rescue programme will not be used to purchase troubled assets as originally planned, dis-appointing investors who hoped to see the bad debt wiped off companies' books.

The Dow Jones Industrial Average opened more than 100 points down and later closed 411.30points off at 8282.66.

Paulson said the administration will continue to use $250bn of the scheme to purchase stock in banks as a way to bolster their balance sheets and encourage them to resume more normal lending.

He announced a new goal for the programme to support financial markets, which supply consumer credit in such areas as credit card debt, car loans and student loans.

Paulson said that 40% of US consumer credit is provided through selling securities that are backed by pools of car loans and other such debt. He said these markets need support.

"This market, which is vital for lending and growth, has for all practical purposes ground to a halt," Paulson said.

The Bush administration decided that using billions of dollars to buy troubled assets of financial institutions at the current time was "not the most effective way" to use the bailout money, he said.

The announcement marked a major shift for the administration which had talked only about purchasing troubled assets as it lobbied Congress to pass the massive bailout bill.

Paulson said the administration is exploring other options, including injecting more capital into banks on a matching basis, in which government funds would be supplied to banks that were able to raise capital on their own.

The treasury secretary also said the rescue programme was not designed to help hard-pressed vehicle makers, which have seen the share prices drop steeply.

Analysts were critical of Paulson's remarks, saying they undermined confidence in the markets.

"This is bringing uncer-tainty into the market, creating a sense that the treasury doesn't know what it's doing," said Philippe Gijsels, a strategist at the Fortis banking group in Brussels.

Gloomy news from some of the biggest US retailers also sent Wall stocks lower, as investors feared that Americans would be unable to help the economy avoid a protracted slump.

The World Bank said more countries were seeking its help and its president, Robert Zoellick, warned that global trade may shrink next year for the first time in more than a quarter century as the credit crisis reduces trade financing.

Britain's leading share index ended 1.5% lower, jolted afresh by weakness in heavyweight miners and banks as a grim Bank of England inflation report stoked global recession concerns.

At the close, the FTSE-100 was 64.67 points lower at 4182.02 points, above the session low of 4134.51 but well below the day's peak of 4333.37.

Share markets on mainland Europe closed sharply lower, led by banks and oils, Credit Suisse led financials lower with an 8.8% fall on market talk of a large trading loss.

The Frankfurt exchange's DAX index ended at 4620.8 points, down 140.78, or 2.96%, while in Paris, the CAC-40 index closed at 3233.96 points, down 102.45,or 3.07%.

In Zurich, the Swiss market index closed at 5702.86 points, down 177.93, or 3.03%.

Earlier, Asian stock markets faltered, with Japan's benchmark losing 1.3%, as evidence mounted that a worsening global economy has taken a toll on companies.

Tokyo's Nikkei stock average slid 113.79 points to 8695.51, and Hong Kong's Hang Seng index fell 101.81 points, or 0.7%, to 13,939.09.

Taiwan's benchmark retreated 0.5% as the country's former president was ordered held on corruption charges. Singapore, South Korea and Australia benchmarks also fell.