KEY POINTS:
Finance chiefs from the world's richest nations, meeting in Washington this morning, are expected to include a multi-trillion-dollar bailout plan as part of their response to the credit crunch.
The Group of Seven meeting follows the worst day of the worst week of the international financial crisis, in which the market turmoil afflicting America and Europecascaded into Asia and Australia.
At one point Japan's Nikkei index was down 11 per cent, and Australia's All Ordinaries closed down 8.2 per cent.
New Zealand's NZX50 closed almost 5 per cent down yesterday, its biggest one-day loss since 1987.
In the past week, $4 billion has been wiped off the value of companies listed on the local stock exchange.
The bad news continued to flow late last night (NZ time) as Europe's markets opened.
London's FTSE 100 index crashed almost 10 per cent as soon as it opened, but picked up to be down 7.4 per cent after four hours of trading.
Germany's DAX was down 9 per cent and France's CAC-40 lost 8.4 per cent.
In Vienna, the stock exchange was suspended until midday after stocks tumbled 10 per cent at the morning's opening bell, and in Russia the MICEX and RTS exchanges suspended trading until further notice under orders from financial regulators.
Today's Washington meeting will bring together finance ministers and central bankers from the United States, Germany, Japan, France, Britain, Italy and Canada for some collective thinking on the credit crunch and crashing stocks.
They are to be joined by counterparts from other nations, including Australia, Brazil, Russia, India and China, for a gathering of the expanded G20 group.
Also this weekend, the International Monetary Fund and the World Bank will be holding annual meetings.
Sources say Japan will propose an IMF loan scheme to give countries in financial crisis access to the trillions of dollars in reserves held by Asian and Middle Eastern governments.
Japan and China between them have US$2.8 trillion in reserves, and although Japan's market has been hit by selling, both countries have been relative oases of calm in a world financial crisis that has destroyed banks from Wall Street to Iceland, frozen money markets and drained capital from emerging markets.
Under the plan, the IMF would ask the country that was to receive the money to draw up a plan for revitalising its financial sector, including writing off its bad assets.
Today's meeting comes at the end of another horror week on money markets.
Japan's Nikkei stock average fell 9.6 per cent yesterday in its biggest one-day loss since the 1987 stock market crash.
The Nikkei, which has fallen for seven consecutive days, lost 24 per cent on the week, more than twice as much as in the week of the 1987 stock market crash. It has lost 46 per cent this year.
Things were little better in Australia, where market watchers called yesterday's trading "Black Friday".
The S&P/ASX200 index fell 8.34 per cent, or 360.2 points, to close at 3960.7, its biggest one-day percentage loss.
The wider All Ordinaries index tumbled 8.2 per cent in its biggest loss for 21 years. Yesterday's session wiped A$106 billion (nearly $117 billion) from the value of stocks.
But the BNZ saw a silver lining to the black cloud of international economic turmoil, saying it could result in falling prices, a reduction in inflation and cheaper petrol.
The bank said declining energy, commodity and oil prices showed inflationary prices had started to moderate in many countries.
"The recent intensification of the financial crisis has augmented the downside risks to growth and thus has diminished further the upside risks to price stability," its forecast predicted.
"Some easing of global monetary conditions is therefore warranted."
This would result in a noticeable fall in New Zealand's inflation over the next one or two years.
"The immediate test of this will be the producers price index and consumer price index figures from around the globe," the BNZ said.
"We anticipate some big monthly drops, which will bring headline annual rates down sharply."
American crude oil futures fell more than US$4 a barrel yesterday as fears that market turmoil would slash demand for fuel outweighed news that Opec will hold an extraordinary meeting next month.
Investors are now putting cash into safer areas and have pushed oil's price down by more than US$60 from its record high above US$147 in July.
THE SILVER LINING
* It's not all bad news ...
* The BNZ says high prices will ease and inflation is expected to tumble.
* Oil prices are falling, yesterday reaching a one-year low of $US84 a barrel.
- Agencies
