Stock markets have been quite volatile this morning: the major indexes managed to stay positive in the first ninety minutes of trading but at 12pm all three indexes fell off a cliff.

The Nasdaq has dropped 0.3% to 1400, the S&P 500 has shed 0.71% to 874 ― extending on a 2% fall yesterday ― and the Dow is trading 0.35% lower at 8134.

Markets tanked yesterday as investors reconsidered the prospects for economic recovery.  No major data has been released this morning to confirm or dispute the new pessimism, but new forecasts from IMF delivered mixed signals.

The IMF said the U.S. should grow 0.8% in 2010, compared to a forecast made in April for flat growth. This revision helped boost the forecast for advanced economies, which are now expected to grow at 0.6% instead of remaining unchanged. 

However, world output is expected to fall 1.4% this year, in contrast to prior expectations of a 1.3% decline. The downward revision was due to lower forecasts for Europe, Russia, the Middle-East, and Africa.

“The global recession is not over,” the IMF said, noting that recovery will be sluggish as financial institutions remain weak and credit markets are impaired. 

“Macroeconomic policies need to stay supportive, while preparing the ground for an orderly unwinding of extraordinary levels of public intervention,” the Fund said. “At the same time, given weak internal demand prospects in a number of current account deficit countries, including the United States, policies need to sustain stronger demand in key surplus countries.”

The only data release for the U.S. this morning was the MBA's mortgage applications survey, which showed an 11% rebound in demand for last week. Markets opened higher after that report was released, but investors are anxious ahead of the earnings report from Alcoa, expected to be published after the closing bell.