Friday, November 2, 2007

Stocks Slide as Fears Stalk Markets

Asian stocks suffered heavy losses in early trade Friday after initial euphoria on Wall Street over a US interest rate cut faded quickly as fresh credit jitters rattled global markets.

Indices around the region fell by as much as nearly three percent after tumbles in New York and Europe on renewed worries about the fallout from the mortgage and credit woes that wreaked havoc on world markets in August. In early trade, Hong Kong slumped 2.9 percent, Tokyo fell 1.7 percent, Shanghai shed 2.0 percent, Sydney dropped 1.8 percent and Singapore was down 2.0 percent.

The downturns came after oil giant ExxonMobil missed Wall Street profit forecasts and analysts at CIBC World Markets downgraded Citigroup and Bank of America, the two biggest US banks, on worries about a credit squeeze. CIBC said Citigroup needed to raise 30 billion dollars in capital over the near-term, also dampening the market sentiment.

"As the fallout from the subprime loan problems will likely linger for a while, the market may remain jumpy on reports related to these problems," said Kazuhiro Takahashi, a manager of equities marketing at Daiwa Securities SMBC.

Elsewhere in the region, Jakarta slumped 2.1 percent, Kuala Lumpur shed 1.0 percent and Taipei dropped 2.1 percent.

Signs that major US banks may be more severely affected by the subprime loan crisis that previously expected took a heavy toll on financial stocks. A surge in crude oil prices above 96 dollars a barrel for the first time Thursday only added to the market's nervousness despite a later pullback.

New York's Dow Jones index lost 2.6 percent Thursday, more than erasing the previous day's gains sparked by the Federal Reserve's latest move to try to contain the fallout from the mortgage and credit market troubles.

Analysts said that Citigroup's woes, following a massive third-quarter loss at Merrill Lynch, underscored concerns that the financial sector will feel more pain from the housing crisis and its spillover.

"The downgrade of Citigroup today was a stark reminder that the full extent of exposure to the loan problems may not be known," said US-based analyst Gregory Drahuschak at Janney Montgomery Scott. "The market hates this kind of uncertainty. This probably assures that volatility will remain high."

Oil traded higher in Asian trade on Friday but was below record peaks as investors took profit and global stock markets weakened. New York's benchmark light sweet crude was up 47 cents at 93.96 dollars a barrel.

Wall Street's losses wiped out Wednesday's gains triggered by the Fed's quarter-point interest rate cut, which followed a half-point reduction in September to try to cushion the economy from the credit and housing woes.

While most investors welcomed the move, the Fed's accompanying statement dampened expectations for further rate cuts, which usually have an immediate psychological impact on stocks and gradually stimulate economic growth.

Some analysts even questioned whether the Fed should be cutting rates after a strong showing for the US economy in the third quarter and with inflation still a concern and stock prices near record levels. The Federal Reserve injected 41 billion dollars in temporary reserves into the US money markets Thursday to help ease ailing credit markets.

The market will get a better picture of the health of the world's largest economy with the release Friday of a key monthly US labour market report that Wall Street expects to show 80,000 new jobs were created in October.

"Investors are keenly awaiting the jobs data to gauge the outlook for the economy," said Takahashi at Daiwa Securities SMBC. "If economic conditions are solid, they would pave the way for the resolution of the subprime loan problems."

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