Stock markets dive as crisis fears spread

Stock markets across the world plunged on Wednesday as concerns about the worst financial crisis in nearly 80 years and fears of a global recession gripped investors despite government efforts to intervene.

MSCI's main benchmark index of world stocks was at 4-year lows, down more than 2 per cent, and its emerging market stock counterpart fell 6.5 per cent.

The pan-European FTSEurofirst 300 index tumbled 4 per cent and Tokyo's Nikkei share average plummeted 9.4 per cent, the largest single-day per centage decline since October 1987.

Government debt prices jumped as the equity selloff reached fever pitch and investors snatched anything resembling stability, such as gold which rose as much as 2 per cent.

"The deteriorating outlook for the economy and the deepening financial crisis are pushing fears to their limit," said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management in Japan.

The sharp market moves came despite efforts by various authorities to inject calm and money into the battered financial system.

Britain unveiled a multi-billion pound rescue package for British banks that included plans to inject up to 50 billion pounds of government money into the country's biggest operators.

It was designed to offer banks short-term liquidity, make new capital available and give the banking system enough funds to maintain lending in the medium-term.

US Federal Reserve Chairman Ben Bernanke, meanwhile, warned on Tuesday that turmoil in markets could cause US economic activity to be subdued into 2009 and signalled a readiness to cut interest rates.

Bernanke's sobering and candid tone about the likelihood of rate cuts came days after European Central Bank President Jean-Claude Trichet suggested last week the euro zone too could cut rates.

The Bank of England delivers its latest rate decision on Thursday and is expected to ease.

However, with the upcoming Group of Seven rich nations meeting on Friday, investors have begun to look for coordinated action to snuff out what has become a severe global threat.

YEN JUMPS, YIELDS FALL

The low-yielding yen was viewed by many currency investors as a clear favourite for relative safety.

The dollar dropped at one point below 100 yen $99.60 yen but was later down 0.5 per cent at 100.84 yen. Britain's pound gained around half a per cent on the bank plan to $1.7569.

"Investor risk aversion and selling of high-yielding currencies are prominent," said Masafumi Yamanoto, head of foreign exchange strategy for Japan at Royal Bank of Scotland.

In another sign of risk aversion, the Markit iTraxx Crossover index, made up of 50 mostly "junk"-rated Euroepan credits, was at 632.5 basis points, according to data from Markit, 16 basis points wider than late on Tuesday.

Investment flowed into government bonds, pushing yields lower.

Interest rate-sensitive two-year Schatz yield was down 13 basis points at 3.040 per cent. 

 

Hong Kong shares down 7 percent, before sudden rally

Hong Kong share prices were down 7.2 per cent in afternoon trade on Wednesday before suddenly rallying, as worries about the global financial sector sparked huge volatility, dealers said.

At one point in afternoon trade, the benchmark Hang Seng index had fallen 7.2 per cent before rallying more than 500 points in just a few minutes.

At 3:07 pm (0707 GMT), the index was down 627.70 points on the day at 16,176.06, a fall of 3.9 per cent since Monday. Turnover remained light as investors shied away from the huge swings.

Tuesday was a public holiday in the Chinese territory.

Markets across Asia dropped violently on Wednesday, as the global banking industry was plunged into turmoil on worries that credit was drying up and doubts about a string of government rescue plans.

 

Russian stocks plunge over 11 per cent, trading halted

Trading was frozen Wednesday on Russia's two main stock markets after plunges of more than 11 per cent on opening, driven downward by huge falls in Asia amid global financial turmoil.

The main RTS exchange was down 11.25 per cent at 761.63 points when the suspension was enforced by Russia's main financial regulator, while the MICEX had tumbled 14.35 per cent to 637.87 points.

The Federal Service for Financial Markets ordered a one-hour halt to trading on the dollar-denominated RTS, the exchange said in a statement on its website.

On its ruble-based counterpart, the MICEX, trading was suspended until Friday or until further orders from the service, an exchange spokesman told AFP.

Both bourses are more than 65 per cent down from their all-time highs in May.

Wednesday's plunge came after a bloodbath on Asian markets, including a 9.38 per cent drop on the Tokyo Stock Exchange that was the worst single day for Japanese shares since 1987. South Korean shares closed 5.81 per cent lower.

"With the US market off five per cent overnight and Asia down five to seven per cent this morning, things bode ill for the Russian market yet again," Moscow-based Alfa Bank said in an advisory note Wednesday.

"Meanwhile, damage from the credit crisis and global slowdown is showing up in the real economy" in Russia, including in its important steel and oil sectors, the bank said.

On Tuesday, Russian shares appeared to stabilise, with the RTS down 0.95 per cent and the MICEX losing 0.96 per cent on a day in which trading was suspended for several hours to halt a major slide.

An announcement Tuesday by President Dmitry Medvedev that the government was increasing its bank rescue package by $36 billion (26.6 billion euros) "failed to materially move the market," Alfa Bank said.

 

London stock market slides 3.47 per cent

London's FTSE 100 index of top shares was down 3.47 per cent at 4,443.94 points shortly after the start of trading on Wednesday after Britain announced the part-nationalisation of eight British banks.

Ahead of the opening, Britain's government Wednesday announced a plan to purchase stakes worth up to 50 billion pounds ($87 billion) in leading local banks amid an escalating global financial crisis.

The news lifted the share prices of British banks that had plunged in trading on Tuesday. The FTSE 100 was lower overall, however, after Tokyo suffered its worst crash in more than two decades on Wednesday as panic-selling erupted over the deepening financial crisis.

In early London trade, British bank HBOS soared 27.7 per cent after its share price had closed down 41.5 per cent on Tuesday. Royal Bank of Scotland was up 12.2 per cent early Wednesday after finishing 39 per cent lower on Tuesday.

Elsewhere, Lloyds TSB gained 8.65 per cent early Wednesday.