Asian shares mixed awaiting US decision

December 16, 2008
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, HONG KONG, December 16 – Asian stock markets were mixed Tuesday as investors awaited the outcome of a US Federal Reserve meeting that some analysts predicted would see interest rates slashed to close to zero.

The Fed was expected to cut the base rate by at least 50 basis points to 0.50 percent, which would be an all-time low, although there were some pointers to a 0.75 percentage point cut.

Tokyo closed 1.12 percent down and Sydney lost one percent.

However Hong Kong was 0.2 percent higher at midday and Seoul\’s KOSPI added 0.3 percent.

Regional markets had opened lower, tracking Wall Street, as a tumble in Japanese business confidence and new signs of a China slowdown underlined worries in the region.

Those concerns deepened on news that HSBC, Europe\’s biggest bank, and other major lenders faced heavy exposure to the alleged 50 billion dollar pyramid scheme said to have been run by one of the biggest names in US investing.

"The tone is reasonably positive but that could change quickly," said Byron Burke, a broker with ABN Amro Craigs in New Zealand.

The US Federal Open Market Committee was expected to cut its base lending rate from the current level of 1.0 percent when its two day meeting concludes later Tuesday, even if the move would be largely symbolic.

Ian Shepherdson, at High Frequency Economics, said: "It would be surprising if the Fed were to do anything other than cut the funds rate by 50 basis points.

"We think the case for cutting even further is very strong but (Fed chairman Ben) Bernanke and his colleagues may want to keep something in reserve."

However, futures market trading suggests a strong likelihood of a cut to 0.25 percent, below the super-low Japanese rate of 0.3 percent.

While some dealers thought the pre-Christmas lull was kicking in, sentiment was affected by the seemingly endless string of bad news coming out of the United States.

The allegation of a pyramid fraud against Wall Street legend Bernard Madoff took on new dimensions overnight as some of Europe\’s biggest banks said they had exposure to his firm, which US authorities said would be liquidated.

HSBC said it had exposure of about one billion dollars, while Europe\’s second-biggest bank Santander said it had a three billion dollar exposure to Madoff Invest Securities.

Fortis Bank Netherlands said it could lose one billion dollars from the alleged scam, even though it had no direct exposure to Madoff\’s company.

European shares dropped Monday on the news, with the CAC 40 in France off 0.87 percent and the Dax in Frankfurt down 0.18 percent. London\’s FTSE 100 was flat, off 0.07 percent.

The Dow Jones Industrial Average lost 0.75 percent while the Nasdaq tumbled 2.1 percent.

The woes mounted Monday as Japan\’s central bank said business confidence had suffered its sharpest drop in three decades.

China, which on Monday announced that industrial output in November rose at its slowest pace in a decade, said Tuesday that urban fixed asset investment also slowed slightly last month.

Meanwhile there has been no firm progress on a possible bailout for the struggling Big Three US automakers — General Motors, Ford and Chrysler. The White House said Monday it was still studying its options.

Lawmakers have said time is running out for the auto giants, and traded blame with union chiefs over last week\’s collapse in the Senate of a short-term 14-billion dollar rescue.

The White House has now said it is ready to consider dipping into a 700-billion dollar Wall Street bailout agreed earlier this year.

The global financial crisis and the economic slowdown have hit share markets worldwide hard this year, and every major market has suffered big losses.

The Dow Jones is off 35 percent, Hong Kong\’s Hang Seng is down 46 percent and the Nikkei in Tokyo has lost almost 44 percent since the beginning of the year.

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