The global credit crisis took a fresh turn on Thursday as Hungary and Ukraine approached international institutions for support in an effort to avoid following Iceland into financial turmoil, Financial Times reported.

The moves came as figures showed that US industrial production plummeted 2.8 per cent in September, its largest monthly decline since 1974, though the decline was aggravated by hurricane disruption and a strike at Boeing, the aerospace company.

The Philadelphia Fed survey of regional business conditions – which was positive in September – plunged to minus 37.5 in October, its worst reading since 1980, suggesting that the economy deteriorated this month.

The mood in Europe was unsettled as Budapest received a ?5bn credit facility from the European Central Bank and Kiev said it was seeking an IMF loan of up to $14bn to “stabilise Ukraine’s financial system”. It was the first time in the 15-month credit crunch that multilateral agencies such as the International Monetary Fund had taken steps that are likely to lead to a bail-out of continental European countries – a clear sign of the acute difficulties debtor nations face in raising finance from credit-starved markets.

“Many countries seem to be experiencing problems because of the repatriation of private capital by foreign investors or the reduction of credit lines from foreign banks,” Dominique Strauss-Kahn, IMF managing director, told the Financial Times. “We are ready to support these economies and we are in discussions with a number of them.”

Hungary’s problems stem from foreign currency loans and big budget deficits. Ukraine’s banks face difficulties repaying foreign credits as the current account is widening. Authorities in both countries insisted they were not in difficulties.

The eastern European moves came as fears of a global recession triggered unprecedented volatility in the markets.

The S&P 500 closed up 4.3 per cent, after having been down as much as 4.6 per cent. Wall Street’s fear gauge – the Chicago Board Options Exchange Volatility Index, or the Vix – hit a record 81.17 during the day.

The Federal Reserve said its balance sheet had swelled another $179bn in the past week, driven by a sharp increase in lending through its credit auctions and to foreign central banks in the shape of offshore dollar loans.

The Fed’s balance sheet now stands at $1,772bn – double its size a year ago.

Earlier, Japan’s Nikkei 225 index fell 11.4 per cent, its worst one-day decline since the 1987 stock market crash. The FTSE 100 in London closed down 5.3 per cent at a five-and-a-half year low.

Financial Times