Markets worldwide falter

DEJA VU: Newly revealed minutes from a US interest rate policy meeting held earlier this month reignited investor fears that the subprime crisis is not yet over


Thu, Aug 30, 2007 - Page 11

Equity markets faltered yesterday in Asia and Europe after steep overnight falls in the US as investors were spooked by resurgent fears of a worldwide credit crunch.

After heavy falls in Asia, the Frankfurt, London and Paris markets dropped in early deals, but British and French share prices later crept into positive territory in choppy trading conditions.

The US Federal Reserve had failed on Tuesday to allay fears that the US central bank was not being open about the extent of the country's credit and economic problems.

Investor sentiment turned sour after the Fed admitted that "strains in financial markets" could dent US economic performance, in minutes from its interest rate policy meeting held earlier this month.

"There was a feeling of deja vu overnight, with credit concerns and rising risk aversion back on the agenda, translating into a weaker equity market," said CIBC economist Audrey Childe-Freeman in London.

In Asia yesterday, Tokyo dove 1.69 percent and Hong Kong finished down 1.47 percent after the leading US index, the Dow Jones Industrial Average, plummeted on Tuesday by more than 2 percent.

In Europe yesterday, Frankfurt shares were down by 0.14 percent, but London and Paris gained about 0.10 percent in late morning deals.

"The major [US] indexes widened their losses as traders grew more anxious over a sharp downturn in consumer confidence and optimism from the Federal Reserve," said a trader at a major European brokerage. "The minutes from the Fed's last meeting showed it expected the market to recover on its own."

Stock markets had pushed lower on Tuesday amid a double whammy of bad economic news from the US.

As well as the comments by the Fed, a research group said that consumer confidence in the world's largest economy had slipped this month.

"Asian markets were facing selling pressure as most Asian economies are heavily dependent on the US economy," said Hirokazu Fujiki, strategist at Okasan Securities in Tokyo.

"We still need more time to check how badly the subprime loan issue is actually affecting consumer sentiment and corporate earnings in the US," he said.

Taipei closed down 0.97 percent, Sydney finished 1.2 percent lower, Manila fell 1.3 percent and New Zealand finished the day off 0.41 percent.

Chinese share prices closed 1.64 percent lower, snapping a seven-day winning streak amid liquidity concerns over the issue of US$80 billion in special treasury bonds.

Analysts said the outlook for US rates was far from clear.

"The immediate need to cut the Fed funds rate has receded," Capital Economics analyst Paul Ashworth said. "If the Fed fails to deliver a rate cut, however, markets could go into a tailspin again."

US borrowing costs have stood at 5.25 percent for the past year.