Global stocks fell sharply and the dollar tumbled yesterday as a fire sale of Bear Stearns and an emergency US Federal Reserve cut of a key lending rate sparked fears that a worldwide credit crisis will claim more casualties.
US stocks slid at their open and European shares sank more than 3 percent, following a sell-off in Asia where Japanese indexes shed more than 3.5 percent.
The dollar hit new lows against the euro and a basket six of major currencies. Oil hit a new high of nearly US$112 a barrel on the weaker dollar.
Investors dived into safe haven assets, lifting gold to more than US$1,030 an ounce at one point and sending yields on short-dated euro zone debt below 3 percent for the first time in more than two years.
"The markets are in a complete state of panic and in such situations there is no such thing as valuation or value in any asset," said Michael Klawitter, FX strategist at Dresdner Kleinwort in Frankfurt.
In Asia, Tokyo stocks plunged by more than 4 percent at one point before recovering some ground to close 3.7 percent lower, ending below the key 12,000 points level for the first time since August 2005.
Hong Kong shed 5.2 percent, Shanghai declined 3.6 percent, Seoul gave up 1.6 percent and Sydney was off 2.3 percent.
In European morning trade, Frankfurt was the worst affected of the main markets, plunging 3.06 percent, London lost 2.11 percent and Paris sank 2.61 percent. Madrid was off 2.14 percent and Zurich fell 2.83 percent.
In New York, the Dow Jones industrial average fell 177.23 points to 11,773.86, a drop of 1.48 percent. The Standard & Poor's 500 Index slid 20.76 points, or 1.61 percent, to 1,267.38. The NASDAQ Composite Index fell 45.76 points, or 2.07 percent, to 2,166.73.
"There isn't necessarily a direct US-UK translation in terms of Bear Stearns," Hargreaves Lansdown analyst Richard Hunter said. "But it does underline what was already a very jittery market, particularly in the banking sector.
In an unexpected move late on Sunday, the Fed lowered the discount rate it charges on direct loans to banks to 3.25 percent from 3.50 percent and took steps to provide cash to a wider range of financial firms, using tools last used in the Great Depression.
Minutes earlier, JPMorgan Chase & Co had said it would buy Bear Stearns for a rock-bottom price of US$2 a share, valuing the US investment bank at the center of a widening global credit crisis at about US$236 million.
Investors are now nearly fully pricing in a 1 percentage point cut in the main federal funds rate at or before the Fed's policy meeting today. That would take US rates down to just 2 percent.
"Desperate times need desperate measures. The Federal Reserve is doing what it takes to restore stability," said Craig James, chief equities economist at Commesec in Sydney.
Global equities have spiraled lower ever since it emerged late on Friday that Bear Stearns was facing a severe funding crisis. The market was also pressured yesterday by rumors that Lehman Brothers is facing similar financial problems, said Peter Lai, a director at DBS Vickers in Hong Kong.
"The panic selling was mainly from individual investors, though some institutions also joined the selling spree," he said.
Also See: JPMorgan to buy Bear for US$2 a share
Also See: TAIEX falls 1.91% on worries over US' economic health
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