By Tony Field

A sense of panic has swept through world stock markets again, although those trading in our time zone seem to be resisting the temptation to plunge too far.

Investors are spooked by signs the world could be heading back into recession and that some European banks could be in trouble, because of their exposure to European government debt.

Here in New Zealand, the NZX50 closed an hour ago, down 0.5 percent.

The Australian market is just finishing for the day and a few minutes ago was down 2.7 percent.

In Asia, trading is still underway, where a short time ago Japans Nikkei Index was down 1.9 percent.

But the damage was worse elsewhere.

From Wall Street to London to Frankfurt; the colour red dominated trading screens.

Everyone is down today, says market analyst Will Hedden. Normally its not what happens, there is normally one or two that stick out.

The sell-off was sparked by concerns about the strength of some European banks, rising US unemployment and a warning from investment bank Morgan Stanley that global growth is slowing to dangerous levels.

That could be bad news for commodity exporters like New Zealand.

If we are heading into a recession or lower growth in Europe and the US, then I suppose what we are worried about is the commodity prices because thats probably the key impact on us straight away, says Andrew Kelleher of ASB Securities.

The Dow Jones finished down almost 4 percent. The London FTSE dropped 4.5 percent and both France and Germany were hammered.

The rush for the exits saw gold a safe haven investment hit anew high of US$1827 an ounce.

New Zealand. then Australia and the Asian markets headed down. The New Zealand Dollar (NZD) fell almost 1 cent and crude oil prices were also down.

People still have memories of 2008. We are not immune to that virus, people sell and ask questions later, says fund manager Mike Taylor.

What has surprised many is that the August sell-off has come at a time when many companies are reporting good profits.

Company results out of the US reporting season, out of the Australia reporting season, out of the New Zealand reporting season, are all going pretty well, says Mr Kelleher.

So we are not in the same situation we were in 2008.

New Zealand and Australia; we dont have the sovereign debt crisis and we dont have our GDP falling off a cliff, so really thats probably why our markets are not down to the same extent, says Mr Taylor.

This is a professional traders market and most investors should sit it out for a few months, he says.

There is a saying in the financial markets that you shouldnt try to catch a falling knife because you might get hurt and it sums up what is going on at present; a volatile market trending down and no one is sure where the bottom lies.