Panicky investors dumped shares Tuesday after US lawmakers unexpectedly shot down a Wall Street bailout plan, dashing hopes of an easing of the global financial crisis.
It was another ugly day for markets in Asia where investors sought shelter in safe havens such as bonds and gold, despite calls from policymakers for calm after a record plunge on Wall Street.As the shockwaves from the crisis reverberated around the globe, Russian stock market trading was halted by regulators before the open.
The surprise rejection by Congress of the 700-billion-dollar bailout package raised fears of a deepening of the financial turmoil that has rocked global markets and brought down some of the world's top banks.Tokyo slumped 4.1 percent to end at a three-year low. The selling spread to Europe, where London slid 2.21 percent in early trade, Frankfurt 2.10 percent and Paris 1.96 percent.
Hiroichi Nishi, equities chief at Nikko Cordial Securities in Tokyo, said he had been shocked by the rejection of the package by Congress."The market is exploring where the bottom is now," he said, adding that all eyes were on whether Congress will vote on the rescue plan again or the White House will come up with new measures.
Markets across the Asia Pacific region took a beating, although most clawed back some of their losses in late trade.Sydney ended down 4.3 percent, Taipei shed 3.55 percent, and Hong Kong was down 2.4 percent by midday."There was surprise that the (bailout) bill didn't get passed," said Andrew Sullivan, a trader at MainFirst Securities in Hong Kong. "The longer this goes on the more people look at the detail and become concerned that the bill may not solve all the problems."
Overnight, the Dow Jones Industrial Average had sunk 777.68 points or 6.98 percent to close at 10,365.45, its biggest single-day point decline ever.The slide eclipsed a 684-point drop on September 17, 2001, when the markets reopened following the September 11 terror attacks.Treasury Secretary Henry Paulson warned US lawmakers they had to act fast."Markets around the world are under stress," said Paulson, architect of the proposal to buy up the mountains of bad mortgage-related debt behind a wave of home foreclosures and spectacular bank failures."We need to get something done," he added. "This is much too important to simply let fail."Japan's economic ministers voiced hope the United States would take action to halt the Wall Street meltdown.The rejection "has a significant impact on not only the US economy but the world economy," Kaoru Yosano, the minister for economic and fiscal policy, told reporters.Japan's central bank injected three trillion yen (28.8 billion dollars) into the Tokyo money market, the 10th straight business day it has pumped cash into the domestic financial system to try to keep credit flowing.There was speculation the world's top central banks may choose coordinated interest rate cuts to try to prevent credit flows drying up.Markets were seeing "a return to the state of extreme turmoil seen up to the time the US government proposed" the plan, Barclays Capital analysts wrote in a note to clients.The US Federal Reserve and other major central banks nearly doubled swap lines to 620 billion dollars on Monday.The euro was under pressure after the rescue of several European banks deepened worries about the region's banking sector.The euro slid to 1.4392 dollars in late Tokyo trade from 1.4432 in New York on Monday.The yen retained support as investors fled riskier assets, although it gave up some gains in late trading.The US currency hit 103.50 during Sydney trading, the lowest since late May, before rebounding to 104.06 yen in Tokyo."Credit worries are deepening over the European financial system as well after the US bailout plan was rejected," said Saburo Matsumoto, chief forex strategist at Sumitomo Trust Bank.