Post by N on Sept 17, 2008 17:04:55 GMT -5
Global stock markets hit fresh trouble, with early gains made on the unprecedented US government bailout of giant insurer AIG turning to dust as investors wondered where the next blow would fall.
Shell-shocked by the failure on Monday of US investment bank Lehman Brothers , markets tumbled again Wednesday on concerns American International Group would also collapse, adding another twist to the global credit squeeze.
Rather than risk further untold damage to an already stressed financial system, the US government stepped in overnight with $US85 billion ($A107 billion) of taxpayers' money to keep AIG afloat.
Initially welcomed in Asian trade, investors soon began wondering who might be next, with British bank HBOS, the country's largest home loan provider, under siege as it announced it was in rescue talks with rival Lloyds TSB.
On Wall Street, where hopes of an AIG rescue allowed a gain of 1.3 per cent on Tuesday, the market sold off quickly on Wednesday, with heavy losses sending European bourses into reverse in late trade.
"The overnight bailout of the US insurer AIG has reassured markets that some financial institutions are too big to be allowed to fail after all," said Capital Economics analyst Julian Jessop.
"Nonetheless, there will be more casualties in the financial sector - if market conditions are now so bad that the giant AIG needs a government bailout, what about the smaller and weaker players?"
US stocks opened lower and continued down as any initial relief at the AIG rescue faded rapidly and investors worried about the potential impact on the government's finances if it has to bail out any more companies.
In the first 10 minutes, the Dow Jones Industrial Average slumped 1.41 per cent and by 1630 GMT (0230 AEST)had lost 3.11 per cent.
Patrick O'Hare at Briefing.com said the reaction to the Fed's action was "tepid at best."
"The idea of the government assuming more liabilities from mismanaged financial outfits, whether secured or not, is not a comforting thought.
"The act itself should offer a measure of support for the stock market since it seems to have taken a worst-case scenario off the table yet the realisation that it doesn't fix the underlying problem is an ongoing concern," he said.
"The financial system is going to continue to be the main mover in these markets and panic will continue to generate huge volatility," warned CMC Markets dealer Iain Griffiths.
"The AIG rescue has been an important development for US markets, however we still feel sceptical that it will be enough to push markets higher."
Reflecting the widespread nervousness, gold prices soared as investors retreated to the traditional safe haven store of value during times of crisis.
On the London Bullion Market, the price of gold jumped to $US813 ($A1,024) per ounce at the fixing from $US779.50 ($A982) late Tuesday.
"What we are seeing is safe-haven buying in the marketplace," said metals analyst James Moore at TheBullionDesk.
In London, the FTSE 100 index tumbled 2.25 per cent to 4,912.40 points, breaching key technical support at 5,000 points where many had hoped the market would hold.
In Paris, the CAC 40 lost 2.14 per cent to 4,000.11 points and in Frankfurt, the DAX was down 1.75 per cent at 5,860.98 points.
Typifying the turmoil, HBOS shares had a brutal, hugely volatile ride.
Prior to reports of the Lloyds TSB talks, HBOS had nosedived 52 per cent to a low of 88 pence, as investors fretted it could be the next casualty.
The stock then jumped equally sharply, at one point rising to 220 pence before closing down 19.2 per cent at 147.1 pence for a third successive day of heavy losses.
Lloyds TSB was meanwhile unchanged at 279.75 pence while RGS slumped 10.42 per cent to 169.40 pence.
Barclays, which said it had bought assets from Lehman Brothers , added 3.17 per cent to 317.75 pence as the market judged the deal well-timed and cheap.
Switzerland's UBS, among the banks worst hit by US subprime or higher risk home loan crisis at the centre of the current turmoil, jumped nearly 13 per cent at the start of the day on the AIG lead but closed down 5.65 per cent.
Russia meanwhile closed its two main stock markets for a second day as shares nosedived and officials pledged $US44 billion ($A55.4 billion) to fight collapsing investor confidence.
The move came a day after Russian stocks suffered their worst one-day drop since the 1998 financial crisis.
The meltdown prompted Russia 's central bank to slash reserve requirements for banks in a bid to restore confidence as central bank head Sergei Ignatyev said he hoped for a "normalisation of the situation" in several days.
Analysts said government action was needed to prevent a dangerous erosion of confidence in Russia 's banking sector, which has struggled to achieve stability since the financial crash of 10 years ago.
In Asia, an equities rally ran out of steam and some markets turned sharply lower on persistent worries over the health of US financial institutions.
Hong Kong closed down 3.6 per cent while Shanghai lost 2.9 per cent on concerns over the impact of the US financial turmoil on the Chinese economy.
Tokyo managed to buck the trend, adding 1.21 per cent.
Shell-shocked by the failure on Monday of US investment bank Lehman Brothers , markets tumbled again Wednesday on concerns American International Group would also collapse, adding another twist to the global credit squeeze.
Rather than risk further untold damage to an already stressed financial system, the US government stepped in overnight with $US85 billion ($A107 billion) of taxpayers' money to keep AIG afloat.
Initially welcomed in Asian trade, investors soon began wondering who might be next, with British bank HBOS, the country's largest home loan provider, under siege as it announced it was in rescue talks with rival Lloyds TSB.
On Wall Street, where hopes of an AIG rescue allowed a gain of 1.3 per cent on Tuesday, the market sold off quickly on Wednesday, with heavy losses sending European bourses into reverse in late trade.
"The overnight bailout of the US insurer AIG has reassured markets that some financial institutions are too big to be allowed to fail after all," said Capital Economics analyst Julian Jessop.
"Nonetheless, there will be more casualties in the financial sector - if market conditions are now so bad that the giant AIG needs a government bailout, what about the smaller and weaker players?"
US stocks opened lower and continued down as any initial relief at the AIG rescue faded rapidly and investors worried about the potential impact on the government's finances if it has to bail out any more companies.
In the first 10 minutes, the Dow Jones Industrial Average slumped 1.41 per cent and by 1630 GMT (0230 AEST)had lost 3.11 per cent.
Patrick O'Hare at Briefing.com said the reaction to the Fed's action was "tepid at best."
"The idea of the government assuming more liabilities from mismanaged financial outfits, whether secured or not, is not a comforting thought.
"The act itself should offer a measure of support for the stock market since it seems to have taken a worst-case scenario off the table yet the realisation that it doesn't fix the underlying problem is an ongoing concern," he said.
"The financial system is going to continue to be the main mover in these markets and panic will continue to generate huge volatility," warned CMC Markets dealer Iain Griffiths.
"The AIG rescue has been an important development for US markets, however we still feel sceptical that it will be enough to push markets higher."
Reflecting the widespread nervousness, gold prices soared as investors retreated to the traditional safe haven store of value during times of crisis.
On the London Bullion Market, the price of gold jumped to $US813 ($A1,024) per ounce at the fixing from $US779.50 ($A982) late Tuesday.
"What we are seeing is safe-haven buying in the marketplace," said metals analyst James Moore at TheBullionDesk.
In London, the FTSE 100 index tumbled 2.25 per cent to 4,912.40 points, breaching key technical support at 5,000 points where many had hoped the market would hold.
In Paris, the CAC 40 lost 2.14 per cent to 4,000.11 points and in Frankfurt, the DAX was down 1.75 per cent at 5,860.98 points.
Typifying the turmoil, HBOS shares had a brutal, hugely volatile ride.
Prior to reports of the Lloyds TSB talks, HBOS had nosedived 52 per cent to a low of 88 pence, as investors fretted it could be the next casualty.
The stock then jumped equally sharply, at one point rising to 220 pence before closing down 19.2 per cent at 147.1 pence for a third successive day of heavy losses.
Lloyds TSB was meanwhile unchanged at 279.75 pence while RGS slumped 10.42 per cent to 169.40 pence.
Barclays, which said it had bought assets from Lehman Brothers , added 3.17 per cent to 317.75 pence as the market judged the deal well-timed and cheap.
Switzerland's UBS, among the banks worst hit by US subprime or higher risk home loan crisis at the centre of the current turmoil, jumped nearly 13 per cent at the start of the day on the AIG lead but closed down 5.65 per cent.
Russia meanwhile closed its two main stock markets for a second day as shares nosedived and officials pledged $US44 billion ($A55.4 billion) to fight collapsing investor confidence.
The move came a day after Russian stocks suffered their worst one-day drop since the 1998 financial crisis.
The meltdown prompted Russia 's central bank to slash reserve requirements for banks in a bid to restore confidence as central bank head Sergei Ignatyev said he hoped for a "normalisation of the situation" in several days.
Analysts said government action was needed to prevent a dangerous erosion of confidence in Russia 's banking sector, which has struggled to achieve stability since the financial crash of 10 years ago.
In Asia, an equities rally ran out of steam and some markets turned sharply lower on persistent worries over the health of US financial institutions.
Hong Kong closed down 3.6 per cent while Shanghai lost 2.9 per cent on concerns over the impact of the US financial turmoil on the Chinese economy.
Tokyo managed to buck the trend, adding 1.21 per cent.
