Published October 28, 2008

World markets slump as Nikkei hits 26-year low

Seoul slashes interest rates as recession fears mount

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(LONDON) European stock markets fell heavily yesterday after the Nikkei index in Japan closed at its lowest in 26 years as the financial crisis raised recession fears and drove up the yen, piling the pressure on the country's exporters.

Tokyo's Nikkei 225 index closed down 6.4 per cent to 7,162.90 - the lowest since October 1982 - with exporters such as Toyota Motor Corp and Sony Corp hit hard. The losses came despite a report that the government was considering massive capital injection into struggling banks in a bid to calm jittery financial markets.

Even Japanese banks that have avoided the worst of the losses that are weighing on their Western counterparts are now struggling as the value of their stock portfolios is hammered. Mitsubishi UFJ Financial Group, one of Japan's largest lenders, said yesterday that it would seek to replenish its capital, raising billions of dollars by selling new shares.

In New York, shares marched lower again as trading began in New York, extending global losses. The Dow Jones industrials fell more than 150 points or 1.6 per cent at the open.

The Standard & Poor's 500-stock index was down 2 per cent and the Nasdaq composite index lost 1.9 per cent.

Yesterday's sharp stock market declines in Asia came amid another round of government measures to boost markets. In South Korea, the central bank slashed its key interest rate yesterday by three-quarters of a percentage point - its biggest cut ever - to prevent Asia's fourth-largest economy from lurching into recession, while Australian and Hong Kong central bankers injected funds into their markets to ensure liquidity.

In mainland China, the benchmark index slumped to its lowest level in more than two years as investors reacted to dismal earnings reports. The Shanghai Composite Index lost 6.3 per cent, or 116.27 points, to 1,723.35. It is now down about 72 per cent from its peak about a year ago.

Hong Kong's Hang Seng Index tumbled 12.7 per cent to 11,015.84, its lowest close in more than four years and biggest daily decline since 1991.

In the Philippines, the key index plummeted 12.3 per cent to 1,713.83 points, triggering a circuit-breaker that automatically halted trading for 15 minutes.

Only South Korea's market managed to eke out gains, perhaps in part because of the big rate cut there. The benchmark Kospi ended 0.8 per cent higher at 946.45.

The MSCI index of Asian stocks outside Japan fell for a fourth consecutive session, losing more than 5 per cent to levels not seen since the first half of 2004.

The MSCI index has now lost more than 40 per cent since Sept 12, right before the collapse of investment bank Lehman Brothers set off heavy selling. The index is down over 60 per cent for the year.

Taiwan shed 4.7 per cent while Australia lost 1.6 per cent. India's main share index closed 2.2 per cent lower after falling 11.5 per cent during trade to its lowest in three years, with local institutions and short covering pulling it off lows.

The Thai bourse was suspended for 30 minutes after it dived more than 10 per cent, triggering an automatic shut-down. It closed 10.5 per cent lower. Jakarta was down 6.3 per cent. Meanwhile, Wellington, Kuala Lumpur and Singapore were all closed for public holidays.

In afternoon trading, Britain's FTSE 100 fell 1.63 per cent, Germany's DAX Index lost 2.57 per cent, and France's CAC-40 declined 4.91 per cent.

In oil, crude prices weakened after Opec's move to cut production in an attempt to halt the declines. Light, sweet crude for December delivery was down US$1.95 to US$62.20 a barrel.

In another development, the US government will begin doling out US$125 billion to nine major banks this week as part of its effort to contain a growing financial crisis, a top Treasury official said yesterday.

Assistant Treasury Secretary David Nason said that the deals with the nine banks were signed last Sunday night, and the government will make the stock purchases this week. The deals are designed to bolster the banks' balance sheets so they will begin more normal lending.

The action will mark the first deployment of resources from the government's US$700 billion financial rescue package.

Meanwhile, sales of newly constructed US single-family homes rose in September and inventories shrank as builders slashed prices to their lowest level in four years to move property as a financial crisis deepens.

The annual sales pace of 464,000 homes was up 2.7 per cent from the revised August figure of 452,000, originally reported as 460,000 homes, Commerce Department data showed yesterday.

Economists polled by Reuters expected the new homes sales pace to dip to 450,000 homes from that original figure. -- AP, Reuters, AFP, NYT