Just when it looked like the pall of gloom had been lifted from investors around the world, the black clouds of doom rolled back in.

The US dollar fell sharply overnight after fresh economic data showed the US economy is struggling: orders for durable goods fell by more than forecast last month and sales of new homes fell to a 13-year low in February.

The unexpected fall in orders for durable goods (products with a life of three years or more) was led by the worst-ever fall in demand for new machinery, as the housing slump and looming recession make companies reluctant to invest.

Only exports are preventing the manufacturing sector from declining further and economists at Morgan Stanley now predict the US economy will shrink at an annual rate of 0.7% in the first quarter (down from a previous forecast of a 0.4% fall). The final update on 4th quarter and 2007 Gross Domestic Product is due tonight.

The US Commerce Department reported that new homes sales dropped 1.8% last month to a 13-year low. That added to the news of slumping home prices, even as sales of existing homes rose in February.

In Europe, Deutsche Bank revealed that it will struggle to reach its 2008 earnings goals because of plunging revenues in most areas. Corporate finance of all types is depressed.

That admission justified Meredith Whitney’s latest downgrades for the big US banks like Citigroup and Bank of America. Whitney famously tipped the Citigroup write-downs that almost crippled the bank late last year and now she has forecast that Citi’s first quarter loss will be four times bigger than previously forecast and as a result Citigroup fell and led US financial shares to their biggest drop in almost two weeks.

Shares in radio group Clear Channel plunged on a growing belief that its $US19.5 billion takeover (announced a year ago) will fail because the banks funding it won’t put up the money. Legal action was launched by Clear Channel and its private equity buyers when the banks funding the deal pulled out after the close of trading.

Leveraged buyout corporate bonds have dropped 10-20% in value, meaning the banks could lose $US3 billion by providing finance for the Clear Channel purchase. The Wall Street Journal reports it would be cheaper for the banks to pay $US600 million or so in penalty fees and other payments than complete the financing.

And Iceland has just announced a series of large scale fund auctions and injections of capital into the country’s struggling banking system. The Icelandic krona has dropped by more than 20%, inflation is running at 6.8%, the central bank lifted rates 1.25% to 15% this week and now the Government is pouring billions of krona into the financial system to try and stave off a credit crunch/freeze.