World shares dive after Lehman Brothers collapse, banks shore up markets
Asian stocks suffered heavy losses Tuesday after the collapse of US investment bank Lehman Brothers, as nervous governments rushed to assure markets their financial networks were sound.
Officials called emergency meetings in capitals across the region as trading screens went red on the heels of the biggest one-day point loss for Wall Street's Dow Jones index since the September 11 terror attacks.
Japanese shares dropped almost five percent to close at a three-year low, while Hong Kong was off 5.9 percent at the lunch break, near a two-year bottom.
Some analysts said there were signs of panic selling, as officials in Australia, Japan and elsewhere pledged to try to keep markets calm. Japan injected 2.5 trillion yen (24 billion dollars) into the markets.
But investors were faced with an array of bad news that went well beyond the fall of Lehman, a 158-year-old institution which had even survived the market crash of 1929 that heralded the Great Depression.
Ratings agencies downgraded American International Group (AIG) -- a move that could spell the end for the insurance giant. Bank of America shares dropped 21 percent after it bought distressed Lehman rival Merrill Lynch.
"Lurking close to the surface are mounting pressures on institutions and on any number of investors as the dominoes start to tumble," said Patrick Bennett, an Asian currency strategist at Societe Generale.
Officials appealed for calm, trying to avert a panic and urging investors not to over-react to the drop, which comes after months of market turmoil set off by worries over US subprime, or high-risk, housing loans.
In Australia, where a surprise late rally kept the market's losses to 1.4 percent, Prime Minister Kevin Rudd met with the treasury officials and the head of the Reserve Bank of Australia.
Rudd told parliament the government was "acutely conscious" that the turmoil was not over. "As events in the US have demonstrated in the last 24 hours, regrettably, there is a long way to run yet," he said.
US Treasury Secretary Henry Paulson vowed Monday to ensure "stability and orderliness" at home and overseas, but markets across Asia found no solace after news that two Japanese banks were among Lehman's biggest lenders.
Aozora, one of those banks, lost around 20 percent of its share value. Meanwhile Lehman's Japanese unit was reported to have the second-largest liability of any bankruptcy filing in post-war Japan.
Government officials held an emergency meeting with Bank of Japan (BoJ) governor Masaaki Shirakawa.
In South Korea, shares closed 6.1 percent lower while the currency, the won, fell 4.3 percent against the dollar, its biggest daily drop in a decade.
The central bank said it would intervene on the foreign exchange market if necessary.
South Korean economic and financial chiefs met to consider their next move, with some looking for a silver lining amid the slew of negative news.
Vice Finance Minister Kim Dong-Soo told reporters before the meeting that Lehman's collapse could be positive for global markets by "quickly removing market instability."
His remarks echoed Paulson, who on Monday insisted that "market discipline" -- in other words, letting failing institutions fail -- needed to be part of the US response to the crisis.
But earlier this month he ordered the US government's takeover of US mortgage giants Freddie Mac and Fannie Mae, and on Monday he reiterated that the US housing mess was "the root" of the current troubles.
The blue-chip Dow Jones Industrial Average dropped 4.4 percent on Monday, its largest one-day point loss since the re-opening after the September 11 attacks in 2001.
Hong Kong said it would ensure orderly market trading as shares tumbled sharply, and Financial Secretary John Tsang said he was not worried about the health of other institutions in the financial hub.
"We have a comprehensive regulatory regime, so I'm not too worried," he said.
Chinese share prices closed 4.47 percent lower while Philippine share prices closed down 4.5 percent, the sharpest one-day fall in Manila since January.
Officials called emergency meetings in capitals across the region as trading screens went red on the heels of the biggest one-day point loss for Wall Street's Dow Jones index since the September 11 terror attacks.
Japanese shares dropped almost five percent to close at a three-year low, while Hong Kong was off 5.9 percent at the lunch break, near a two-year bottom.
Some analysts said there were signs of panic selling, as officials in Australia, Japan and elsewhere pledged to try to keep markets calm. Japan injected 2.5 trillion yen (24 billion dollars) into the markets.
But investors were faced with an array of bad news that went well beyond the fall of Lehman, a 158-year-old institution which had even survived the market crash of 1929 that heralded the Great Depression.
Ratings agencies downgraded American International Group (AIG) -- a move that could spell the end for the insurance giant. Bank of America shares dropped 21 percent after it bought distressed Lehman rival Merrill Lynch.
"Lurking close to the surface are mounting pressures on institutions and on any number of investors as the dominoes start to tumble," said Patrick Bennett, an Asian currency strategist at Societe Generale.
Officials appealed for calm, trying to avert a panic and urging investors not to over-react to the drop, which comes after months of market turmoil set off by worries over US subprime, or high-risk, housing loans.
In Australia, where a surprise late rally kept the market's losses to 1.4 percent, Prime Minister Kevin Rudd met with the treasury officials and the head of the Reserve Bank of Australia.
Rudd told parliament the government was "acutely conscious" that the turmoil was not over. "As events in the US have demonstrated in the last 24 hours, regrettably, there is a long way to run yet," he said.
US Treasury Secretary Henry Paulson vowed Monday to ensure "stability and orderliness" at home and overseas, but markets across Asia found no solace after news that two Japanese banks were among Lehman's biggest lenders.
Aozora, one of those banks, lost around 20 percent of its share value. Meanwhile Lehman's Japanese unit was reported to have the second-largest liability of any bankruptcy filing in post-war Japan.
Government officials held an emergency meeting with Bank of Japan (BoJ) governor Masaaki Shirakawa.
In South Korea, shares closed 6.1 percent lower while the currency, the won, fell 4.3 percent against the dollar, its biggest daily drop in a decade.
The central bank said it would intervene on the foreign exchange market if necessary.
South Korean economic and financial chiefs met to consider their next move, with some looking for a silver lining amid the slew of negative news.
Vice Finance Minister Kim Dong-Soo told reporters before the meeting that Lehman's collapse could be positive for global markets by "quickly removing market instability."
His remarks echoed Paulson, who on Monday insisted that "market discipline" -- in other words, letting failing institutions fail -- needed to be part of the US response to the crisis.
But earlier this month he ordered the US government's takeover of US mortgage giants Freddie Mac and Fannie Mae, and on Monday he reiterated that the US housing mess was "the root" of the current troubles.
The blue-chip Dow Jones Industrial Average dropped 4.4 percent on Monday, its largest one-day point loss since the re-opening after the September 11 attacks in 2001.
Hong Kong said it would ensure orderly market trading as shares tumbled sharply, and Financial Secretary John Tsang said he was not worried about the health of other institutions in the financial hub.
"We have a comprehensive regulatory regime, so I'm not too worried," he said.
Chinese share prices closed 4.47 percent lower while Philippine share prices closed down 4.5 percent, the sharpest one-day fall in Manila since January.
- Dow Jones Newswires contributed to this report -
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