US stocks plunge as investors remain jittery despite AIG bailout

New York: US stocks plunged at the open and government debt rallied in a renewed bid for safety on Wednesday as investors worried the US government's rescue of insurer American International Group (AIG) wouldn't be enough to stem further financial market turmoil.

The benchmark S&P 500 index shed more than two per cent when US equities opened, though it pared some losses later. European shares, which initially got a boost from the news of government help for AIG, tracked the weak start in US markets as a spike in interbank lending rates rattled investors who fear credit constraints.

US Treasury bonds rallied sharply in a scramble for safe-haven investments, with the 30-year bond gaining more than one full point in price and its yield falling to about four per cent, down from 4.08 per cent late on Tuesday.

London rallied by 1.29 per cent in late morning trade, while Frankfurt clawed back 0.60 per cent and Paris was up 0.44 per cent near the half-way stage. All three markets had shed between four to seven per cent on Monday and Tuesday.

Elsewhere, an Asian rally failed to keep momentum and some markets turned sharply lower on lingering worries over the health of US financial institutions.

Hong Kong share prices closed down 3.6 per cent, while Shanghai lost 2.9 per cent on unabated concerns over the impact of the US financial turmoil on the Chinese economy. Tokyo's benchmark Nikkei-225 index closed up 1.21 per cent, trimming gains from the morning. One day earlier, the Nikkei had plunged nearly five per cent to a more than three-year low.

Russia's two leading stock markets suspended trading yesterday as stocks continued to fall sharply amid global turmoil.

The yen fell against the euro and moved well away from recent four-month highs versus the dollar.

"The government's lifeline to AIG has temporarily boosted risk appetite and we are seeing some unwinding of some of the safe-haven positions that we have seen over the past week or so," said Omer Esiner, a senior currency analyst at Ruesch International in Washington.