Markets give cautious response to Fed plan

November 26, 2008
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, WASHINGTON, November 26 – Investors in Asia reacted cautiously Wednesday to the latest plan by the US Federal Reserve to unblock credit markets, with stock markets in the region showing mixed fortunes.

The gloomy outlook for the global economy weighed on sentiment, prompting profit-taking in some markets despite the Fed\’s announcement that it would buy up to 800 billion dollars in mortgage and asset-backed securities.

Tokyo\’s Nikkei-225 index ended 1.3 percent lower, weighed down by concerns about a stronger yen, and Sydney slipped 2.3 percent. But Seoul closed up 4.7 percent and Hong Kong\’s Hang Seng closed 3.8 percent higher.

Adding to jitters in Tokyo, Fitch Ratings downgraded Toyota Motor Corp. by two notches to AA, warning that in the current slump "even the strongest player" no longer deserved its top rating.

In China, hundreds of laid off workers rioted amid a dispute over severance pay, smashing offices of a toy factory and clashing with police, state press said Wednesday.

As part of the US government stimulus package up to 600 billion dollars will go towards purchases of mortgage securities, and a separate 200 billion dollars for asset-backed securities to help get credit to consumers.

The new efforts aim to thaw credit markets, promote liquidity and bring down borrowing costs for the housing market, which is at the center of the economic storm which has dragged down the global economy.

As the economic crisis wears on President-elect Barack Obama will press his aggressive plans to deal with his nation\’s woes when he holds his third press conference in as many days focused on the stricken US economy.

In Brussels, draft legislation set to be unveiled called for a "significant" two-year stimulus campaign to jolt embattled European Union economies out of recession.

"Only through a significant stimulus package can Europe counter the expected downward trend in demand, with its negative knock-on effects on investments and employment," said the draft document, obtained by AFP.

The European draft did not say how much the stimulus package could be worth, but commission chief Jose Manuel Barroso has said it should be at least one percent of EU output, which would amount to about 130 billion euros (170 billion dollars).

France for its part plans to inject 19 billion euros into key industries as part of a stimulus package to kick-start the French economy, Finance Minister Christine Lagarde said.

French shares fell by 1.42 percent to 3,162.74 points on the CAC 40 index when trading began on Wednesday, losing steam after two days of big gains.

The dollar edged down against the yen as traders mulled the new push by the Fed to unfreeze credit markets – a move that unsettled some traders.

The dollar eased to 94.97 yen in Tokyo afternoon trade, down from 95.24 in New York late Tuesday. The euro dropped to 1.2969 dollars from 1.3063 and to 123.66 yen from 124.45.

A report by the Organization for Economic Cooperation and Development has added to the gloomy news stating that the rich world now faces its worst economic crisis since the 1980s.

The OECD said eight million more people could be thrown be out of work by 2010, bringing the OECD area jobless total to 42 million,

Housing prices will continue to fall in many countries and there is a risk the crisis has further to run, with fragile banks exposed to new bad debts, the OECD said in a report on the impact of the global meltdown on 30 its industrialized member countries.

"Many OECD economies are in or are on the verge of a protracted recession of a magnitude not experienced since the early 1980s," OECD chief economist Klaus Schmidt-Hebbel said.

The OECD warned the United States was running up a huge national debt and would see its economy contract 0.9 percent in 2009.

The report predicted a decline in the eurozone by 0.6 percent, Japan by 0.1 percent and the overall OECD zone by 0.4 percent.

The US Commerce Department reported the US economy shrank by 0.5 percent in the third quarter, revising an earlier estimate of 0.3 percent.

In Jerusalem, the Israeli finance ministry unveiled a 2.8-billion-dollar plan to restore faith in banks and pension funds after widespread criticism of an earlier economic bailout package.

In Argentina, President Cristina Kirchner proposed tax and investment incentives to help cushion the impact of the global financial crisis on the nation and encourage repatriation of capital.

She also unveiled a massive public spending plan to pump more than 21 billion dollars into Argentina\’s infrastructure.

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