Global stock markets tumbled on Friday as fears mounted of a collapse of the Big Three US automakers after the US Senate refused to throw them a financial lifeline, traders said.
Share prices plunged in Asia and at the start of European trade after hours of late-night negotiations among US senators on a bailout of the troubled industry collapsed.
The US dollar in turn fell sharply, hitting a 13-year low against the yen.
“It’s a very bad sign. US stocks will likely nosedive,” said Yasutoshi Nagai, chief economist at Daiwa Securities SMBC.
Wall Street will reopen at 1430 GMT after losing 2.24 percent on Thursday.
Tokyo’s Nikkei index slumped by more than 7 percent at one point as the dollar tumbled below the key ¥90 level for the first time since 1995.
The Japanese benchmark ended down 5.6 percent as exporters reeled from the stronger yen, which undercuts their overseas earnings.
Hong Kong shares closed down 5.48 percent, Seoul dived 4.38 percent and Sydney was off 2.4 percent.
Elsewhere in the Asia-Pacific yesterday, Taipei ended down 3.7 percent, Shanghai closed down 3.81 percent, Wellington lost 1.8 percent and Manila dropped 2.0 percent.
In early European trade, London dived 4.07 percent, Frankfurt tumbled 4.16 percent, Paris lost 4.74 percent, Madrid gave up 3.93 percent and Zurich lost 3.91 percent.
A US$14 billion deal passed the House of Representatives this week but it faced stiff opposition from senators in US President George W. Bush’s Republican Party.
“I’m terribly disappointed that we are not able to arrive at a conclusion,” said Senate Majority Leader Harry Reid, a member of president-elect Barack Obama’s Democratic Party. “We have tried very, very hard to arrive at a point where we could legislate for the automobile industry.”
Japan was also reportedly set today to raise its own stimulus package to ¥40 trillion (US$437 billion) from ¥26.9 trillion as the outlook rapidly worsens in Asia’s largest economy.
Investors reacted cautiously to the reports, noting that Prime Minister Taro Aso — who unveiled a ¥26.9 trillion boost in late October — is struggling amid voter discontent with his handling of the economy.
Aso “is already a lame duck,” said Hideaki Higashi, a strategist at SMBC Friend Securities. “We do not know how seriously we should believe the reported measures would be implemented.”
In China, shares closed down 3.81 percent yesterday due to concerns about weak fourth quarter earnings and Beijing’s lack of new economy-boosting measures, dealers said.
China’s retail sales growth eased to 20.8 percent last month from 22.0 percent in October, reinforcing concerns that consumption in the world’s fourth-largest economy was slowing.
“Many investors chose to sell as China’s economy has shown clear signs of further slowdown, and corporate earnings in the fourth quarter will be poor,” TX Investment’s Wu Feng said.
The benchmark Shanghai Composite Index, which covers A and B shares, closed down 77.47 points at 1,954.22 on turnover of 73.4 billion yuan (US$10.7 billion).
In New York on Thursday, the Dow Jones Industrial Average slid 2.24 percent as investors fretted over the rescue plan for the troubled US auto industry.
Market nervousness was reinforced by news that US jobless claims in the past week soared to a fresh 26-year high of 573,000, well above expectations.