World stock markets down as bank jitters mount

[January 21, 2009]  HONG KONG (AP) -- World stock markets dropped Wednesday, with Japan's benchmark losing 2 percent, as concern that rising bank losses will cripple the world economy overshadowed the inauguration of President Barack Obama.

The downward lurch followed Wall Street, where investors returning from a holiday reacted with alarm to a rash of negative news about Western banks like Royal Bank of Scotland and sent key stock measures tumbling by more than 4 percent.

Sentiment across Asia and Europe continued to be dour even as Obama assumed power Tuesday vowing to "begin the work of remaking America."

With company and economic prospects seeming to darken by the day, hopes are fading his administration can bring about a quick recovery in the world's largest economy through a massive stimulus package in the coming months.

"While it was a great day to hope, and fun to watch a part of history, investors are very much in tune to the reality that there is not a lot this new president can do to help Asia, or the world, let alone the United States, in the very near term," said Kirby Daley, senior strategist at Newedge Group in Hong Kong.

In the latest signs of strain in Asia amid the global slump, Singapore slashed its 2009 growth forecast for a second time this month, saying the economy could shrink as much as 5 percent. The Southeast Asian city-state, already in recession along with Japan and Hong Kong, is reeling from plunging demand for its exports from industrial countries and elsewhere.

The outlook for Asian companies also continued to deteriorate. Australia's BHP Billiton Ltd, the world's largest mining company, announced plans Wednesday to slash 6,000 jobs, or about 6 percent of its global work force, to cope with falling demand. In China, insurance heavyweight China Life warned its 2008 profit may be down more than 50 percent from the previous year.

In Japan, the Nikkei 225 stock average dropped 164.15 points, or 2 percent, to 7,901.64, while Hong Kong's Hang Seng Index shed 381.19 points, or 2.9 percent, to 12,578.58.

Benchmarks in South Korea and India retreated about 2 percent or more, Singapore's index was down 1.6 percent and Australia's stock measure lost 1 percent. Shanghai's main stock gauge was off around 0.5 percent, while Taiwan's stock measure inched modestly higher.

As trading got underway in Europe, Britain's FTSE lost 1.8 percent, Germany's DAX shed 2.2 percent and France's CAC-40 was off 2.7 percent.

Overnight in New York, Wall Street pitched sharply lower as Obama took office, with the Dow Jones industrial average plummeting 332.13, or 4 percent, to 7,949.09, its worst ever showing for an Inauguration Day.

Broader stock indicators also fell sharply, as the Standard & Poor's 500 index fell 44.90, or 5.3 percent, to 805.22.

Wall Street futures suggested U.S. markets would be mixed in Wednesday trade. Dow futures were up 5 points, or 0.1 percent, at 7,950 while S&P500 futures were down 0.1 point at 805.90.

As in the U.S., where banking stocks like Citigroup and Bank of America collapsed by double digit percentages, Asian trade saw sharp selling in the financial sector as investors feared governments would again have to bail out Western firms with too much debt and not enough capital.

Joseph Yam, head of Hong Kong's de facto central bank, warned of a second round in the financial crisis.

"The effect of this round will be even more widespread and have a huge impact on the world's financial markets," said Yam, who leads the Hong Kong Monetary Authority. "We have a difficult year ahead."

In Japan, heavyweight lender Sumitomo Mitsui Financial Group Inc. fell 5.4 percent. Investors pummeled London-based lender HSBC Holdings PLC for an eight straight session in Hong Kong, its shares shedding another 4.4 percent. China Life's Hong Kong shares tumbled 7. 5 percent.

South Korea's KB Financial Group Inc., the holding company for top South Korean lender Kookmin Bank, dropped 4.6 percent.

Falling commodities prices pulled resource producers down, with BHP losing 1 percent in Sydney and leading Chinese firm PetroChina off 4 percent in Hong Kong.

In oil, light, sweet crude for March delivery fell 24 cents to $40.60 in Asian trade. The contract fell $1.53 to settle at $40.68 overnight, with the February contract expiring Tuesday.

In currencies, the dollar traded down at 89.75 yen, compared to 89.87 yen, while the euro rose to $1.2926 from $1.2876 late Tuesday.

[Associated Press; By JEREMIAH MARQUEZ]

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