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20 April 2024

Asian markets dive on US bank rescue fears



The global stock sell-off carried over into Asia on Tuesday after an overnight rout on Wall Street, as the Obama administration's bank rescue plan failed to calm nervous markets.

Japanese stocks fell 2.6 per cent in morning trade after Wall Street hit near 12-year lows as investors reacted with disappointment to Washington's strategy for rescuing ailing banks amid deepening pessimism over the financial crisis.

The benchmark Nikkei-225 index fell 191.66 points to 7,184.50 by the lunch break.

The Japanese government responded by saying it would consider taking fresh steps to halt the plunge as prices neared the lowest levels in 26 years.

"Excessive stock falls are undesirable. The government will consider what it can do if stock prices fall too much," Finance Minister Kauro Yosano said without elaborating.

Amid the rout, the dollar fell against the yen in Asian trade, dropping to 94.28 yen in Tokyo from 94.58 in New York late on Monday as fearful investors unloaded the greenback.

Hong Kong shares joined the sell-off, ending the morning 3.5 per cent lower. In Shanghai, Chinese share prices were down 2.62 per cent at midday amid profit-taking in bank shares.

The moves followed heavy falls in European and US markets, with the Dow Jones Industrial Average having earlier sunk 3.41 per cent to 7,114.78, crashing to its lowest close since May 1997.

Prices plunged into the red after US authorities unveiled plans to tackle the toxic mortgage-related assets of banks that started the crisis more than a year ago, in a bid to restore fast-eroding confidence in the financial system.

Yet the plans met a negative reception with many criticising the lack of clarity in a joint statement from the US Treasury, Federal Reserve and banking regulators, which said a "capital buffer" would be made available for ailing banks.

It also stressed the program would seek to avoid nationalisation, saying the lifeline being offered could lead to bigger government stakes but with a "strong presumption" that banks "remain in private hands."

The statement followed reports the previous day saying the US government was considering taking a 25-40 per cent stake in Citigroup after the launch of the new aid program Wednesday.

Analysts said the rescue plan triggered market confusion about the government's handling of the nationalisation debate.

Investors "are selling (shares and the greenback) without being clear whether they should be afraid of banks being nationalised or whether they want it," said Sumitomo Mitsui Banking Corp. chief strategist Daisuke Uno.

Robert Eisenbeis, an economist at Cumberland Advisors, said the administration "has gotten itself trapped" in a debate on nationalisation even as it increases control of the sector.

"Once you have government ownership, it is hard to say that doesn't constitute a form of nationalisation," Eisenbeis said.

"Once the government money is in there, government can start to call the tune on policies, salaries. I think a lot of this debate is semantics."

Markets were also unsettled by reports that insurance giant American International Group -- which is owned 80 per cent by the US government -- may seek more aid and report the biggest ever US corporate loss.

European markets were earlier hammered in the turmoil, with Frankfurt's DAX stock index hitting a four-year low, falling below 4,000 points for the first time since October 2004 after losses on Wall Street.

London's FTSE 100 index fell 0.99 per cent while the CAC 40 was off 0.82 per cent in Paris.