Asian governments fail to halt market freefall

October 8, 2008
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, HONG KONG, October 8 – Asian governments tried in vain Wednesday to halt the bloodbath on the markets, with Japanese stocks losing more than nine percent on panic-selling in the face of the worst financial crisis in decades.

Japan and Australia pumped billions of dollars into the banking system and Hong Kong slashed interest rates, following other moves by the United States and Europe, but there was no stopping the misery on bourses across the region.

Japan suffered what amounted to an indiscriminate sell-off, with investors dumping shares across the board, sending the Nikkei down 9.38 percent – its biggest one-day plunge since the stock market crash of 1987.

Australia shed 5.0 percent and Hong Kong was off 5.6 percent at the mid-day break, with every blue-chip stock on the Hang Seng Index in the red. South Korean shares lost 5.8 percent.

"The deepening credit crisis stoked fears that the global economy may be dragged into recession," said Matthew Kwok, research head at Tanrich Securities in Hong Kong. "It is hard to forecast a bottom."

The slide followed another bleak day on Wall Street, where the Dow gave up 5.1 percent on Tuesday to close at a five-year low.

As they have done repeatedly of late, governments tried new measures to shore up confidence and keep money available to banks in the face of a credit crunch first sparked by subprime mortgages gone bad in the United States.

Japan pumped another 2.1 trillion yen (20.7 billion dollars) into money markets, its 16th straight day of intervention, while Australia injected more than 850 million dollars.

Hong Kong, which normally follows rate decisions in the United States, struck out on its own to announce a 1.0 percent cut in its key lending rate, hoping to ease the pressure on banks and financial institutions.

The US Federal Reserve said Tuesday it would buy up short-term debt, known as commercial paper, to try to kick-start credit flows, and Fed chairman Ben Bernanke strongly hinted that a US interest rate cut was on the cards.

Meanwhile Britain was expected to announce details of a rescue package for its ailing banking industry worth up to 90 billion dollars after an emergency meeting held by Prime Minister Gordon Brown late Tuesday.

But nothing so far has worked to stop the sell-offs amid the worst financial crisis since the Great Depression.

"These sorts of measures aren\’t working anymore," said Hiroichi Nishi, a broker at Nikko Cordial in Japan. "It\’s like you\’re trying to pump blood into a heart with clogged arteries."

The current crisis has its roots in a wave of loans to would-be US homebuyers with spotty credit histories. Once people began to default on these so-called subprime mortgages, a chain reaction of chaos ensued.

Housing foreclosures sent home values plunging, and the US housing market fell apart. Meanwhile the loans themselves had been re-packaged as complicated investment products and resold.

As bank after bank realised the extent of its investment in these bad debts, they saw they had less money available to make new loans while their own share prices began to collapse and the global meltdown began.

Now there are fears that the crisis will spiral into a full-scale recession across the world, and investor confidence has been badly shaken as trillions of dollars have been erased from share values worldwide in recent months.

"Everyone is looking for a silver bullet, but we just have to ride it out," Adrian Vance, a broker at Hamilton Hindin Greene in New Zealand, told Dow Jones Newswires.

Even the smaller markets in Asia were hit hard on Wednesday.

Trading was halted in Indonesia after the main index plummeted more than 10 percent, while Indian shares fell almost six percent in morning trade. Taiwan lost 5.76 percent.

US President George W. Bush discussed the economic meltdown with leaders of Britain, France and Italy, seeking a common strategy ahead of crisis talks between the Group of Seven major economies in Washington on Friday.

"I was on the phone with them this morning to ensure that our actions are closely coordinated. We live in a globalised world," Bush said. "We want to make sure that we\’re effective."

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