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Government intervention fails to slow selloff across the globe
More European governments followed Germany's lead on Monday, offering guarantees to savers in a frantic effort to calm fears among investors over the worst fin-ancial crisis in 80 years.
- Reuters
- Published: 00:43 October 7, 2008
- South Korea said it would dip into the world's sixth-largest foreign exchange reserves to help with loans.
- Iceland's krona, a currency that has been a target for investors seeking high yields, tumbled 10 per cent against the euro.
- Stock markets crumbled and credit conditions tightened in the Gulf, a boom area for investors over the past few years as a result of an influx of oil money.
- Bankers in Pakistan called for urgent central bank action to stop the liquidity crunch putting banks in jeopardy as overnight call rates closed between 25 and 28 per cent.
- Vietnam said it had withdrawn funds from overseas banks and deposited them in Singapore and Hong Kong to reduce exposure to the crisis.
- The Bank of Japan offered to lend 1 trillion yen against pooled collateral in an auction to inject liquidity into the market.
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London/Berlin: More European governments followed Germany's lead on Monday, offering guarantees to savers in a frantic effort to calm fears among investors over the worst fin-ancial crisis in 80 years.
However, the moves failed to comfort financial markets as investors from Tokyo to London slashed risk from portfolios and positioned for a further tightening of credit and bank lending and the rising risk of a serious global economic recession.
Despite concerted efforts to stem the crisis, investors were clearly seeking more concrete steps from auth-orities, perhaps in the form of coordinated action from next weekend's meeting of the Group of Seven industrial nations.
Economies that gained most from the boom in commodities demand and surging global growth in the last three years were at the sharp end of market moves as the once abundant liquidity landscape that has fuelled their growth became more arid.
Russia halted share trading for an hour after its benchmark stock index sank more than 14 per cent to a three-year low.
Gulf equities also crumbled as fears mounted that the fallout from Europe and the US would strike the region.
Governments across the globe battled to restore confidence.
South Korea said it wanted crisis talks with Japan and China.
Sweden became the latest European Union country to act, with the government saying it would expand bank deposit guarantees and the central bank raising the amount of loans offered to banks.
It followed Germany's pledge on Sunday to guarantee private deposit accounts, a move which spurred similar action by Austria and Denmark.
Ireland issued the first such guarantee last week, prompting criticism of a fragmented European Union response.
In Spain, Economy Minister Pedro Solbes said the government was prepared to guarantee deposits unilaterally if the European Union did not act.
Finance ministers from the euro zone countries were to meet in Luxembourg later on Monday.
A 'fear-driven market'
European banks have been hit hard by the fallout from a crisis that began in the United States when the housing market collapsed and bad mortgage debts multiplied.
The banking upheaval that began on Wall Street has effectively shut down interbank and other loan markets, pushing industrialised countries closer to recession.
"We have a seriously weak and fear-driven market on our hands," said Tom Hougaard, chief market strategist at City Index in London.
The various deposit guarantee moves were putting intense pressure on countries such as Britain, which face the prospect of a drain in deposits from their banks.
Market tumbles: Spreading crisis
There were signs across the world that the crisis was biting deeper.
- Reuters
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