Gloomy figures from Japan and South Korea sparked a massive sell-off on Asian markets yesterday as regional leaders agreed to set up an US$80 billion fund to fight the global economic crisis.
The agreement, reached as more than 40 Asian and European countries gathered in Beijing for talks on the worst financial crisis since the Great Depression, came as officials in Washington warned of a sharp rise in US unemployment.
The deal between South Korea, China, Japan and the 10 members of the ASEAN is the first major coordinated regional action since the financial turmoil erupted last month.
A spokesman for South Korean President Lee Myung-bak said the 13 leaders had pledged to work more closely on economic matters.
“[They] agreed on the need to strengthen regional cooperation and policy coordination in the face of the global financial crisis,” the spokesman said.
Few details were given, although a preliminary agreement reached in May stated that Japan, South Korea and China would contribute 80 percent of the fund, to be set up by next June, with ASEAN countries covering the remainder. It builds on the so-called Chiang Mai Initiative, in which the 13 nations set up bilateral contracts to supply funds through currency swap lines.
In spite of the announcement, Asian stock markets took another hammering, as fears grew that the financial crisis was taking a heavy toll on corporate earnings in the region.
Japan’s Nikkei stock index plunged 9.6 percent to end at its lowest level in more than five years after electronics giant Sony, considered a bellwether of the Japanese economy, issued a profit warning.
“Wall Street closed higher overnight, but it was only a marginal gain after massive selling. The direction of global markets has not changed,” said Daisuke Uno, chief market strategist of Sumitomo Mitsui Banking Corp.
“Looking at the volatility on Wall Street, the trend on overseas markets and the higher yen, it’s no surprise Tokyo share prices are falling,” Uno said.
Elsewhere in Asia, Sydney closed 2.6 percent lower, South Korea closed down 10.6 percent, Hong Kong was down almost 7 percent and Singapore lost 4.82 percent.
“The market seems to be still in panic,” Lee Kyung-soo, from Taurus Investment & Securities, told Dow Jones Newswires.
In New York, the Dow Jones Industrial Average rose 2.02 percent on Thursday after swings in both directions, while London rebounded 1.16 percent, Paris closed up 0.38 percent and Frankfurt shed 1.12 percent.
In Washington, the White House warned of a sharp rise in layoffs and unemployment stemming from the global economic crisis amid fresh warnings of a painful and lasting recession.
White House Spokeswoman Dana Perino said former US Federal Reserve chairman Alan Greenspan was right to warn, in testimony to a US congressional panel, of what he called “a significant rise in layoffs and unemployment.”
“We’re in for a rocky road on the employment front,” Perino told reporters.
Greenspan, who ended his 18-year stint as Fed chief before a years-long housing bubble burst, warned that a “once-in-a-century credit tsunami” would pummel consumer spending and jobs.
In Mumbai, India’s central bank kept its key interest rates steady, but declared it was ready to take “unconventional and swift” measures to deal with the global financial crisis.
The bank has injected billions of dollars into the financial system to spur lending and kick-start the economy.
In France, President Nicolas Sarkozy announced the creation of a US$100 billion euro (US$128 billion) sovereign wealth fund to protect strategic sectors of the economy from the global financial storm.
Declaring that the recent turmoil had killed off the “dictatorship of the market,” Sarkozy vowed to lead Europe toward a model in which the state will take a more active role in industry.
Governments around the world have unveiled rescue packages over the past month totaling more than US$3 trillion, including loan guarantees and cash injections, to restore confidence to banks and reverse a drop in lending.
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