Japanese and Hong Kong stock indexes tumbled 8%-9% on Wednesday, while other major Asian stock markets plunged about 5% on Wednesday, as concern over the widening Western banking crisis and slowing economies outweighed actions by the central banks of Japan, Australia, Hong Kong and even Britain to ease the credit squeeze.Asian investors were deluged with negative news from around the world. The International Monetary Fund on Tuesday raised its its estimate of losses tied to U.S. loans and securitized assets to $1.4 trillion, from $1.3 trillion two weeks ago. The Washington-based multilateral lender further warned that global financial institutions may need $675 billion in fresh capital over the next several years to recover from the present credit crisis.The IMF’s warning seemed to be more influential than signals from U.S. Federal Reserve Chairman Bernanke that the Fed is ready to reduce interest rates. The Dow fell 508.39 points, to 9,447.11 overnight.Central banks across Asia stepped up to offer funding to commercial banks on Wednesday.
One day after it slashed interest rates by the most in 16 years, the Reserve Bank of Australia expanded the types of collateral it would take for loans to banks in its daily money market operations and greatly lengthened the period for which it would lend. The Bank of Japan injected an additional 1.5 trillion yen ($14.8 billion) into the money market in an effort to curb the cost of short-term borrowing between banks. The Hong Kong Monetary Authority said it would cut its benchmark interest rate from Thursday by 100 basis points, to 50 basis points above the prevailing U.S. Federal Funds Target Rate, from the current 150 basis points.
Following the Asian central banks, Britain on Wednesday also unveiled a 200 billion pound ($350.9 billion) rescue package for British banks, including injection of up to 50 billion pounds ($87.6 billion) of government money into the country's biggest operators such as Royal Bank of Scotland (nyse: RBS - news - people ) and HSBC (nyse: HBC - news - people ).Their efforts did little to calm the markets. The cost of protection against debt default soared in Asia, as the rates banks charge each other climbed, further squeezing the flow of credit through the global money system.
In Japan, the benchmark Nikkei 225 index dropped the most in 21 years; investors were chilled by a report in the Nikkei Business Daily, based on unnamed sources, asserting that Toyota Motor (nyse: TM - news - people )'s profit was likely to fall around 40% in the year to next March on weak sales in its key North American market and slower growth in China. (See "Toyota: No Antilock Brakes For Business Cycle Downside.") That would be far worse than the automaker’s already lowered previous forecast.With investors liquidating losing positions throughout Asia funded by yen borrowing, the Japanese currency strengthened to 99.27 against the dollar, eroding the value of overseas sales for exporters.The Nikkei plummeted 952.58 points, or 9.4%, to 9,203.32, its biggest one-day drop since October 1987. The broader Topix lost 8.0%, to 899.01. Under the circumstances, Prime Minister Taro Aso hinted that the government could intervene in the market.Toyota Motor shares plunged 11.6%, to 3,280 yen ($33.04). Sony (nyse: SNE - news - people ) reached a fresh year-to-date low, crashing 12.3%, to 2,385 yen ($24.03). Exporters were hard hit across the board; semiconductor makers fell particularly steeply. Advantest (nyse: ATE - news - people ) plunged 14.9%, to 1,538 yen ($15.23), while Tokyo Electron (other-otc: TOELF - news - people ) crumbled by 12.75%, to 3,420 yen ($33.94).Hong Kong’s Hang Seng index lost 8.2%, to 15,431.73, falling below the 16,000-point level for the first time since July 2006. Shares in Aluminum Corp of China (nyse: ACH - news - people ) slumped nearly 20.0%, to 3.41 Hong Kong dollars (43.7 cents), after China's largest aluminum producer cut alumina prices for the third time since June and warned investors of a more than 50% slide in its third-quarter profit. Oil giant PetroChina (nyse: PTR - news - people ) dropped 14.0%, to 6.18 Hong Kong dollars (79.2 cents), while Industrial and Commercial Bank of China (other-otc: ICBAF - news - people ) skidded about 8.0%, to 3.80 Hong Kong dollars (48.7 cents), sending the China Enterprise Index down 11.5%, to 7,452.74.Mainland China’s Shanghai Composite index subsided by a relatively mild 3.0%, to 2,092.22.