World markets fall as Japan’s recession deepens

Stocks in Europe and Asia slumped Monday as Japan reported its economy contracted the most since 1974, Britain was warned it faced the worst recession in almost three decades and the Group of 7 nations offered no solution to revive global growth.

The MSCI World index of stock prices in 23 industrialized countries fell 0.7%, marking its fifth straight decline and putting the gauge down 9.7% year to date. The index of 23 developed markets has dropped steadily since U.S. Treasury Secretary Timothy F. Geithner disappointed investors with a lack of detail in a revamped financial rescue plan he unveiled last week.

U.S. stock markets were closed for Presidents Day.

“It is all just illustrating that we are really in a deep recession,” said Mike Lenhoff, chief strategist at Brewin Dolphin Securities in London. “Markets aren’t getting any relief from any good news at the moment.”

Finance ministers and central bankers from the G-7 industrialized countries said in a statement released after talks in Rome that they were working to restore confidence in financial markets and revive the world economy.

The officials said the full effect of rescue packages enacted by individual nations would “build over time” but predicted a severe economic decline persisting for most of 2009.

Japanese shares dropped 0.4% as measured by the Nikkei 225 index after the government reported that the country’s gross domestic product contracted at an annual rate of 12.7% in the fourth quarter. The Tokyo market fell more sharply today, with the Nikkei down 1.6% in afternoon trading.

In Britain, a key stock index dropped 1.3%. The Confederation of British Industry predicted that the country’s economy would shrink 3.3% this year, instead of the 1.7% forecast in November.

Shares of British insurer Legal & General lost 11% after the country’s Financial Services Authority asked life insurance companies to assess how well they could withstand investment market shocks.

Analysts say the firm may need to boost reserves for bond defaults by as much as $2.7 billion.

An index of 600 European stocks slumped 1.4%, while a measure of Asian stocks declined 0.6%. A gauge of 23 stock markets in emerging economies also fell 1.3%.