Fed rate cut fails to slow stock slump

Global markets extended their slide for a second day yesterday, plunging amid fears that a possible US recession will cause a worldwide economic slowdown.

The dramatic declines in Asia and Europe spread to Wall Street, where stock index futures were already down sharply hours before the trading day began.

US tumbled the most since September 2002 after the Federal Reserve's interest-rate cut failed to persuade investors the economy will avert a recession.

The declines following Monday's holiday added to a sell-off across Europe and Asia that has erased US$7.3 trillion in global stock-market value this year. Exxon Mobil Corp, the largest oil company, and Barrick Gold Corp, the biggest gold producer, fell on lower crude and metal prices. Bank of America Corp posted its steepest decline since 2003 after the second-largest US bank said earnings dropped 95 percent.

The S&P 500 retreated for a fifth-straight day, dropping 50.42, or 3.8 percent, to 1,274.77 at 9:36am in New York. The Dow Jones Industrial Average decreased 429.86, or 3.6 percent, to 11,669.44. The Nasdaq Composite Index lost 103, or 4.4 percent, to 2,237.02. About 43 stocks fell for every one that rose on the New York Stock Exchange.

Before trading opened yesterday, the US Federal Reserve had responded to declining sentiment by cutting its target for the federal funds rate by 75 basis points to 3.5 percent.

"The Committee took this action in view of a weakening of the economic outlook and increasing downside risks to growth," it said.

In Taiwan, share prices closed 6.51 percent down yesterday, with the weighted index falling 528.24 points to 7,581.96.

Stocks in a range between 7,566.75 and 7,741.99 points on turnover of NT$134.53 billion (US$4.1 billion).

Japan's Nikkei 225 index nose-dived 5.7 percent -- its biggest percentage drop in nearly 10 years -- to 12,573.05, a day after falling 3.9 percent. Australia's benchmark index sank 7.1 percent, its steepest one-day slide in nearly 20 years.

Hong Kong's Hang Seng index, which slumped 5.5 percent on Monday, finished down 8.7 percent. In China, the Shanghai Composite index lost 7.2 percent to 4,559.75, its lowest close since August.

Indian Finance Minister P. Chidambaram urged investors to remain calm after trading in Mumbai was halted for an hour when the stock market fell 10 percent within minutes of opening. By the close, the Sensex regained some ground to close down 4.6 percent.

European had their biggest one-day falls since the Sept. 11 attacks and were volatile yesterday. By mid-morning the UK's FTSE 100 had slipped 1 percent, Germany's DAX dropped 2.9 percent and France's CAC 40 slid 1.1 percent.

Investors shares over the last two days on worries that the US economy, battered by a credit and housing crisis, will shrink in coming months, weakening demand for exports.

Dealers US President George W. Bush's announcement on Friday for US$140 billion in temporary tax cuts and other measures to ward off a recession in the US was not good enough.

French Finance Minister Christine Lagarde said yesterday that Bush must do more.

Adding the gloom, billionaire investor George Soros said the world was facing the worst financial crisis since World War II and the US was threatened with recession.

In Asia, stocks tumbled the most since September 2001, extending a global slump that has wiped more than US$5 trillion from stock markets this year on concern world economic growth is faltering.

The MSCI Asia Pacific Index tumbled 6.3 percent, taking its drop from a November high to 22 percent and following Europe into a bear market.

"We're in panic territory," said Patrick Chang, who helps manage US$4.5 billion at CIMB-Principal Asset Management Bhd in Kuala Lumpur. "The markets are pricing in a recession. We won't see a bottom for the next one to two weeks."

Trading briefly suspended in South Korea as well as India yesterday, and Hong Kong share prices suffered their biggest ever single-day fall, closing down 2,061.23 points.

"There was a snowball effect of selling, mainly due to falls on other world markets, fears that troubles on the US financial markets are spilling over into the wider economy and finally that Japanese authorities are unable to do anything about it," said Toshihiro Matsuno, market research head at SMBC Friend Securities.

"Stability needs to emanate from the US markets and there is little that Japan can or would want to do," he said.

But Matsuno said that the market expected US authorities to try to calm markets before next week's Federal Reserve meeting, which is widely expected to slash interest rates.

"Although there are few economic indicators this week, the market is expecting US authorities to say or do something to tackle this problem -- other than rate cuts -- that would calm down markets," Matsuno said.

The stock market volatility will continue as long as US and European markets are unstable, said Yutaka Miura, strategist at Shinko Securities.

"Investors are waiting to see if US and European policy makers will come up with new measures," Miura said.

"An inter-meeting rate cut by the Federal Reserve or the advanced implementation of Bush's stimulus plan or the introduction of a public fund could be effective in bringing stability to the markets," he said.

In Taiwan, share prices closed near the daily limit of 7 percent as investors tracked global market slump, dealers said.

Reming Yu (余瑞明), a vice president at Hua Nan Investment Trust Corp (華南永昌投信), blamed the freefall in global equity markets worldwide for the losses: "Taipei stocks were overwhelmed by the global market slump, so the local bourse can hardly be exempt from such fundamental worries."

However, analysis suggests the local bourse has been oversold and a short-term technical rebound could not be ruled out, he said.

"We will see how the US Fed will decide on interest rates later this month before we can further predict the prospect of global economy," he said.

Market Taiwan Semiconductor Manufacturing Co (台積電), Cathay Financial Holdings (國泰金控), Hon Hai Precision Industry (鴻海精密) and AU Optronics (友達光電) all closed limit-down.

Formosa Petrochemical (台塑石化) fell NT$4.9 to NT$86, as investors ignored a report that it was entering the rubber business.

Taishin Financial Holding (台新金控) also closed limit-down at NT$13, failing to respond to the news that its unit, Taishin Asset Management Co Ltd (台新資產管理), booked a capital gain of US$181.2 million from selling a property in Taipei.

United Microelectronics (聯電) fell NT$0.85 to NT$17.3, China Steel (中鋼) lost NT$2.55 to NT$41.5 and Formosa Plastics (台塑) shed NT$4.9 to NT$84.8.

Also see: EU officials warn of US recession risks

Also see: Bank cuts GDP growth forecast