Mumbai, Sept. 15: The collapse of Lehman Brothers — the venerable 158-year-old investment bank ranked fourth in the US — convulsed markets around the world today with stocks flattened by a tidal wave of selloffs.

Global currencies were also in turmoil with both the dollar and the rupee floundering as regulators, bankers and investors tried to make some sense of the impact that the world’s biggest bankruptcy filing would have on an already-devastated financial landscape.

The sensex crashed over 800 points at one stage as markets around the world crumbled, and the rupee sank to a two-year low, dipping below 46 to the dollar, amid renewed fears that the year-long sub-prime mortgage crisis could suck more financial institutions into its vortex.

Investors were rattled to learn that American International Group (AIG) — the US insurance giant — had asked the US Federal Reserve for a $40-billion bridge loan. Speculation grew that AIG could also flounder if it failed to come up with a financing package within the next 72 hours.

Stocks were battered from Asia to Europe: Taiwan’s benchmark index fell four per cent while Indonesia’s dipped 4.7 per cent and Singapore’s Straits Times tumbled over 3 per cent. The stock exchanges in Japan, Hong Kong and South Korea were closed because of holidays.

The FTSEurofirst 300 index of leading European shares fell five per cent, led by falling bank stocks such as UBS, down 10 per cent. Shares in the US banks trading in Frankfurt tumbled, with Lehman plunging 80 per cent and Morgan Stanley, Citigroup and others all in retreat. Frankfurt-listed shares in AIG fell almost 30 per cent.

In the domestic market, investors were spooked by the collapse of Lehman and Bank of America’s $50-billion buyout of Merrill Lynch.

The sensex opened at 13666.28 — a drop of nearly 334 points over the previous finish — with the market in a state of panic. With aggressive selling, the sensex plunged to 13150.81, a crash of nearly 850 points. “Investors are also worried that foreign investors will continue to stay away from Indian equities,” said an analyst.

While banking, auto and realty lost value, some of the momentum stocks were trading nearly eight per cent lower than their previous close. Technology counters also buckled on concerns that some of these companies may have exposures to Lehman.

However, there was some recovery towards the last hour of trading. This saw the benchmark index ending at 13531.27, a fall of 469.54 points, or 3.35 per cent, than the previous finish.

“Even though the markets opened with a downward gap of 330 points and slipped another 500 points, it closed with a loss of only 469 points. This showed some sort of consolidation and buying at lower levels,” said Arun Kejriwal, director of KRIS.

Deepak Jasani, head of research (retail) at HDFC Securities, said foreign institutional investors were not huge sellers in the cash markets today. Jasani said investors would wait to see how the efforts to restructure AIG played out.

The tremors on the stock markets were also felt on the foreign exchange markets.

Crude dips

Oil plunged $4 today as investors fled to safer havens because of the turmoil in the US financial system and on early signs that Hurricane Ike had spared key US energy infrastructure.

The US crude dropped $4 to $97.18 barrel at 1506 GMT, after hitting a seven-month low of $94.13 earlier.

London Brent crude fell $4.77 to $92.81 a barrel.