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Asia and Europe shares tumble
Asian and European stock markets fell sharply on Tuesday as investor confidence in the US financial system eroded further despite a government-backed plan to help beleaguered mortgage financiers Fannie Mae and Freddie Mac.
- AP
- Published: 23:39 July 15, 2008
London: Asian and European stock markets fell sharply on Tuesday as investor confidence in the US financial system eroded further despite a government-backed plan to help beleaguered mortgage financiers Fannie Mae and Freddie Mac.
Financials were hit particularly hard as investors worried that trouble in the US markets would spillover to Asia and Europe.
By afternoon in Europe, Britain's FTSE 100 had fallen 2.55 per cent to 5,165.20, Germany's DAX lost 2.60 per cent at 6,039.20 and France's CAC-40 retreated 2.18 per cent to 4,052.28.
Fears of yet more bank losses in Europe weighed on stocks.
Several major banks have written off billions and had to raise more capital.
"We have got results coming out later in the week and there are worries there are going to be more writedowns," said Lawrence Peterman, investment director at Eden Financial in London.
Official figures showing inflation in Britain hit a higher-than-expected 3.8 per cent in June, up from 3.3 per cent in May, was also having an effect, Peterman said.
In Asia, every major index suffered declines, with Hong Kong's Hang Seng Index dropping more than 3.8 per cent and Taiwan's benchmark losing over 4.5 per cent. In Tokyo, the Nikkei 225 index dropped nearly two per cent to close at 12,754.56.
Japanese traders were rattled by a local business newspaper report that the country's top three banks hold a combined 4.7 trillion yen ($44 billion) in Fannie Mae and Freddie Mac debt. Another newspaper report unnerved Taiwan's market with news that at least two leading financial institutions have invested in the mortgage giants, and the country's central bank may also have purchased their bonds.
In China, rumours were circulating that the Chinese government had also invested in Fannie and Freddie bonds.
Boost
The two government-chartered companies received a boost on Sunday when the US central bank and Treasury Department promised to step in with short-term funding and other aid should mortgage losses mount. Together, the companies hold or back about half the outstanding mortgages in the United States.
A sell-off of regional banks overnight on Wall Street, as well as fears that other American banks might face difficulties ahead, only added to the unease. On Monday, the Dow Jones industrial average fell 45.35, or 0.41 per cent, to 11,055.19 after spiking nearly 140 points in early trading.
"Investors are quite concerned we could be heading toward a meltdown in the equities market if there's no rebuilding in confidence, especially in the US," said Alex Tang, head of research at Core Pacific-Yamaichi in Hong Kong.
In Japan, banks and insurance issues got slammed.
Mitsubishi UFJ Financial Group plunged 5.32 per cent, Mizuho Financial Group was down more than five per cent, and Sumitomo Mitsui Financial Group plunged 6.11 per cent.
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