TOKYO, October 22 – Fears of a global recession triggered sharp swings on currency markets Wednesday and sent Asian shares down despite talk of fresh government aid to shore up confidence in the financial system.
The euro and other high-yield currencies including sterling fell on worries about the health of the major eurozone economies and speculation the European Central Bank would cut interest rates.
Japan\’s Nikkei share index closed down 6.79 percent, snapping a three-day rebound, after a surge in the yen — bad for Japanese exporters — and concern that the worst financial crisis since the Great Depression will morph into a global recession.
While the yen soared, the euro sank to a near two-year low in Asian trade, at one point bidding as low as 1.2750 dollars.
"Concerns about the impact of the financial crisis on the real economy are growing rapidly," Kazuhiro Takahashi, senior analyst at SMBC Daiwa Securities, said.
"Players are particularly concerned about the situation in Europe. Volatile trading is expected to continue for now."
South Korean shares fell more than eight percent in late afternoon trade, triggering a brief suspension of the KOSPI.
Hong Kong shares ended the morning down 2.9 percent, Australia closed off 3.4 percent partly on the back of weaker commodity prices, New Zealand ended down 1.78 percent and Taiwan closed down 1.62 percent.
Wall Street\’s Dow Jones index had sunk 2.50 percent Tuesday, after several US companies posted weaker-than-expected quarterly earnings, and most European exchanges also ended with losses.
The falls came despite new attempts by the US Federal Reserve to restore confidence to the fragile financial system.
In a bid to help troubled money market mutual funds, the Fed said it would make available up to 540 billion dollars for purchases of highly rated short-term debt.
The market for these assets, which in normal times are considered safe investments offering modest returns, has frozen up in recent weeks as the global financial crisis worsened.
Disruption in the market for commercial paper threatens companies, which issue the securities to raise cash for short-term needs such as paying salaries.
In Argentina, President Cristina Kirchner announced plans to nationalize 10 private pension funds holding 30 billion dollars in assets.
In Britain the Financial Times reported the government is planning to lend about three billion pounds (five billion dollars) to Iceland to repay Britons with savings in a stricken Icelandic bank.
The Financial Times, quoting unnamed officials in Iceland, said a British delegation hoped to wrap up the deal — worth about 30 percent of the island nation\’s gross domestic product — during a trip to the country this week.
The governor of the Bank of England admitted Britain is "likely" entering a recession, but said government efforts to support ailing banks mark the start of a long haul back to normality.
Chinese President Hu Jintao discussed the turmoil by telephone with his US counterpart George W. Bush and promised Beijing would work with the international community to maintain the stability of the global economy and financial markets.
Hu said he hoped US measures to curb the impact "would take effect as soon as possible, restore investor confidence and prevent further expansion of the crisis."
Indian Prime Minister Manmohan Singh called for developing nations to play a role in ending the turmoil, which was triggered by huge losses by global banking giants in mortgage-related securities and led to a collapse in market confidence.
"Developing countries like India are also affected by the crisis, and have to be part of the solution," he told a luncheon with Japanese business leaders in Tokyo.
The central Reserve Bank of India cut its lending rate for the first time since 2004 earlier this week, and Singh has conceded that the nation will face a "temporary slowdown" from "the ripple effects" of the crisis.
The central banks of the United States, Canada and major European nations had already slashed interest rates in early October in a concerted effort to bring calm to markets.