Stocks plunge, oil soars in market turmoiladmin
World markets saw another day of turmoil and investor jitters Monday as Asian shares plunged, oil hit a fresh high and the dollar fell to a new bottom after the near-collapse of US bank Bear Stearns.
Dealers said an emergency cut by the US Federal Reserve to its discount rate and a weekend deal for JPMorgan Chase to buy Bear Stearns at a fire-sale price had added to the sense of crisis in financial markets.
Oil prices soared to fresh highs while gold prices jumped as investors fled to safe-havens amid the financial market storm.
Tokyo share prices dropped 4.2 percent by lunch with the headline Nikkei index sliding below 12,000 points for the first time since August 2005.
Hong Kong opened 4.1 percent lower, Shanghai declined 2.5 percent, Seoul gave up 2.0 percent, Sydney declined 3.1 percent and Singapore fell 2.8 percent.
“Most regional markets are lower today due to the meltdown in the US,” said Francis Lun, general manager at Fulbright Securities in Hong Kong. “The financial crisis is deepening.”
The rout came as the dollar slumped to a fresh record low against the euro and a 12-year trough against the yen, as traders braced for a hefty cut to the Fed’s main federal funds rate later this week.
The Federal Reserve late Sunday cut its discount rate a quarter-point for certain financial institutions and said it would offer immediate liquidity to the brokerage system “to promote orderly market functioning.”
Markets were already expecting a cut of at least 50 basis points to the federal funds rate at a meeting on Tuesday.
The central bank’s latest move “may raise expectations that the Fed may take bolder action,” said Mitsusige Akino, chief fund manager at Ichiyoshi Management.
The discount rate cut came amid growing concerns about the US financial system following the woes at Bear Stearns, which battered the ailing greenback.
The dollar fell to as low as 95.75 yen, a level not seen since September 1995, while the euro hit a fresh lifetime high of 1.5905 dollars.
The US measures, including an emergency rate cut, have so far failed to calm markets, said Kazuhiro Takahashi, equity department head at Daiwa Securities SMBC.
JPMorgan Chase announced it would acquire Bear Stearns for about two dollars a share, making the sale worth about 236 million dollars, a tiny fraction of the storied bank’s stock market value of 3.54 billion dollars on Friday.
“The purchase price — two dollars — was so low, making us think how much the prices would be of other financial institutions. It may take some more time to see this latest bout (of selling) run its course,” Takahashi said.
Bear Stearns, among the hardest hit by the collapse of the US subprime or high-risk mortgage market, said Friday it was getting an emergency loan from JPMorgan Chase, backed by the Federal Reserve, due to liquidity problems.
Wall Street’s Dow Jones index fell 1.6 percent to close at 11,951.09 on Friday following the bailout of the fifth-largest US investment bank.
The fear among investors is that other banks may also be experiencing a cash crunch, dealers said.
“The US market will continue to be hostage to fresh developments related to the subprime loan and credit crisis,” Mizuho Research Institute analyst Koji Takeuchi said.
“The appreciation of the yen, combined with surging crude oil prices, has strengthened concerns about the profits of exporters, making them susceptible to selling,” Takeuchi said.
New York crude oil futures soared to a new high of 111.42 dollars in Asian trade as the dollar slumped.
Gold prices opened markedly higher in Hong Kong, hitting 1,002.00-1,003.00 US dollars an ounce, up from Friday’s close there of 995.00-995.50. Gold touched 1,007.40 dollars at the London Bullion Market on Friday.