Stocks fall as yen edges higher; Australia cuts benchmark rate by 1 percent
By David Jolly and Bettina Wassener
HONG KONG: Stock markets in Asia extended their falls on Tuesday, with the Nikkei 225 in Japan falling below the 10,000-point mark in early trading, down more than five percent at 9,936, for the first time in five years, hit not only by worries about global growth prospects, but also by the recent sharp appreciation of the yen.
In Australia, the central bank cut its benchmark interest rate by one percentage point, the biggest reduction since 1992, to cushion the nation's economy a financial crisis that has gone global, Bloomberg reported. Governor Glenn Stevens and his board lowered the overnight cash rate target to 6 percent from 7 percent.
The Japanese currency, perceived as a relative safe haven, edged up further in early Asian trade on Tuesday, after staging its biggest one-day rise against the U.S. dollar since 1998 on Monday. By Tuesday morning, it traded at 101.80 per dollar, and 137.46 to the euro.
In Sydney, the Standard & Poor's/Australian Stock Exchange 200 Index slipped 2.6 percent earlier and had recovered to trade at 0.4 percent lower by early afternoon, while the Kospi in South Korea fell as much as 2.7 percent in early trade. Hong Kong markets were closed Tuesday for a holiday.
The drops in Asia came after global stocks fell sharply Monday, with European shares plunging the most in 21 years and the Dow Jones industrial average finishing below 10,000 for the first time in four years, as spreading problems in the world's banks increased the risk of a serious worldwide recession.
The Monday rout began with a solid wave of selling from the opening of Asian markets and worsened during European trading. Wall Street sank at the opening.
The sell-off was doubly worrying, investors said, because there had been hope that the passage Friday in Washington of the Treasury's $700 billion financial sector bailout plan would help restore market sentiment.
But investors took flight amid signs that the market meltdown was directly hurting consumers' confidence, said Howard Archer, chief European economist at Global Insight in London.
"Even people who don't have to cut back on their spending right now are doing so," Archer said. "They're asking, 'Is my job safe?"' That will have major repercussions for both manufacturers and service providers, he said.
In Europe, the DJ Stoxx 600 index closed down 7.62 percent, the biggest decline since the crash of October 1987. The Dow Jones industrial average finished down 3.6 percent at 9,955.50 in New York, and the Nikkei 225 stock market average fell 4.3 percent in Tokyo. The MSCI emerging markets index fell 11 percent, as shares in commodity-producing countries like Brazil, Russia and Indonesia plummeted. Government bond prices soared worldwide as investors sought safety.
Credit remained extremely tight, with banks reluctant to lend to one another, and the U.S. Federal Reserve announced in Washington that it would provide as much as $900 billion in cash loans to banks to restart lending.
The growing apprehension about the global economy was reflected in the price of oil, which fell at one point below $90 for the first time since February. The dollar and the yen rose against the euro amid a huge realignment in the currency market, as investors began to rethink the risk of their holdings.
"With Europe starting to be in panic mode, the dollar is gaining by default of the euro weakening and this continues to be a negative factor for commodities," Olivier Jakob, an oil analyst at Petromatrix in Zug, Switzerland, wrote in a research note.
Once again European banks were among the biggest losers, with Royal Bank of Scotland falling 20 percent, the most in 20 years, on concern that it would need to raise capital. UBS also declined 13 percent, Société Générale fell 12 percent, and Barclays dropped nearly 15 percent. Unicredit shares were suspended from trading several times before closing 5.5 percent lower.
But while the decline in banking sector shares is by now an old story, shares of industrial companies were also hammered Monday, with European Aeronautic Defense & Space, the parent of Airbus, falling 9.1 percent; ArcelorMittal, the world's biggest steel maker, falling 15 percent; and the German automaker Daimler also falling 15 percent. British Airways fell more than 12 percent.
Investors have begun to call for coordinated global action by governments and central banks to help arrest the increasing anxiety in the market. Archer, the Global Insight economist, said the Fed, the Bank of England and the European Central Bank were all probably moving toward interest rate cuts.
Nicholas Bibby, an economist in the Singapore office of Barclays Capital, said falling share prices showed that many investors were still worried that banking difficulties might spread, even after the passage of the U.S. economic bailout plan.
"It's a fear of contagion," he said. He said Asian banks were better positioned than most to withstand the current problems because the region's high savings rate tended to mean that Asian banks were net lenders in international money markets.
In a major reversal of recent strategy, investors worried about banks and economic health in Europe continued their flight to the apparent stability of the Japanese financial system. The euro fell to $1.3488 in late New York trading, from $1.3772 late Friday. The dollar fell to ¥100.40 from ¥105.32, and the euro declined to ¥135.38 from ¥145.07. Foreign exchange trading was chaotic, with the Australian dollar falling 7 percent against its U.S. counterpart and the Mexican peso hitting its lowest level ever against the U.S. currency.
Emerging markets were the worst hit. Bovespa in Brazil halted trading twice as the benchmark index fell 5.4 percent.
Indonesian stocks fell 10 percent on the Jakarta exchange. The Indonesian president, Susilo Bambang Yudhoyono, voiced optimism that the economy would handle the dislocations of the global credit crunch better than it did the Asian economic meltdown of the 1990s.
"God willing, there will be no repeat of the crisis 10 years ago," he said at a special meeting with ministers, Reuters reported.
In Russia, both major stock exchanges suspended trading twice after shares fell precipitously, yet again. The MICEX was down 16.69 percent when trading was halted, and the less-liquid, dollar-denominated RTS fell 15.67 percent.
Gazprom, the largest company in Russia, was down 14.24 percent at $5.57 when trading stopped. The company that Russian leaders once boasted would be the largest in the world by market capitalization, has lost 64 percent from its peak in May.
Norilsk Nickel, another Russian blue chip, lost 32.7 percent on Monday, after one of its principal shareholders, Oleg Deripaska, the richest man in Russia, was forced to surrender to creditors shares in the Canadian auto parts maker Magna on Friday. That margin call raised the question of whether other leveraged assets, including his recently purchased Norilsk shares, would soon be seized by banks.
More broadly, the specter of other defaults by the wealthy but secretive Russian businessmen, known as oligarchs, has added another fear factor to the Russian market.
"We don't know how much leverage the oligarchs still have," said Kingsmill Bond, chief analyst at Troika Dialog bank in Moscow. "It is widely believed there is additional pressure on different oligarchs."
Amid the turmoil, a deputy minister of economy, Andrei Klepach, said the government was considering additional anti-crisis measures on Monday, Interfax reported. Klepach on Monday also revised downward estimates on net capital inflows into Russia this year, from $30 billion to zero. "The situation is changing radically," Klepach said.
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