Stock markets mauled, raises heat for world action on crisis
Source: 11-OCT-2008 Intellasia | AFP
Oct 11, 2008 - 7:14:00 AM Global stock markets spiralled ever deeper into the vortex on Friday as pressure mounted for world leaders to throw up a decisive wall to contain the worst financial inferno since the Great Depression.

A city worker walks past a poster in London's financial district, on October 8. While governments worldwide have not yet agreed on a solution to fix the current global economic crisis, nearly all agree on the cause of the problem: the large bonuses awarded to executives. (AFP/Carl de Souza)

Stock exchanges from Tokyo to London suffered more staggering losses --adding to the turmoil for finance ministers from the Group of Seven richest nations to discuss in Washington.

London's FTSE 100 index of leading shares nosedived 10.20% to as low as 3,873.99 points --the first time below 4,000 points since July 3, 2002 --and was 7.81% down at about 1045 GMT.

Frankfurt's DAX 30 also shed more than 10.0% and in Paris the CAC 40 dived 9.68%. They later nursed losses of 9.06% and 7.99% respectively.

"We are drowning in a sea of red numbers," said Barclays Wealth analyst Henk Potts.

"The reality is that most investors have been spooked by the sheer pressure that the credit crunch is putting on the global economy."

Hong Kong share prices closed down 7.2%, Singapore shares ended 7.34% lower and Japan's Nikkei-225 index closed down 9.62%.

Tokyo briefly halted some trading in futures and options as the Nikkei saw its largest fall since the crash of October 1987.

A fresh injection of 45.5 billion dollars into the Japanese money markets failed to stop the collapse, and the crisis also claimed its first Japanese victim, with Yamato Life Insurance filing for bankruptcy protection.

Graphic shows weekly performance of selected foreign stock market indexes (AP graphic)

Shares around the world have crashed over the past two weeks since the collapse of Lehman Brothers in the United States put the focus on banks' disastrous lending on the US mortgage market.

Central banks have since spent hundreds of billions of dollars trying to keep credit markets moving. The United States and Britain have spent massively to prop up their banking systems and Iceland is fighting national bankruptcy.

Justin Urquhart-Stewart, marketing director at London-based Seven Investment Management, said the world now faces a "perfect storm" with a banking system in crisis and a dramatically slowing global economy.

"Putting the two things together is creating something deeply unpleasant," he said.

A graph is displayed on the All Ordinaries Index inside the Australian Stock Exchange in Sydney on October 7. Australian shares plunged 5.0% in early trade Friday after a fresh round of losses on US and European stock markets driven by the global financial crisis. (AFP/File/Greg Wood)

With no sign of a silver bullet to halt the crisis, pressure grew for more coordinated international action.

Japanese prime minister Taro Aso, chair of the Group of Eight club of key economies, said he would call an emergency summit if the Washington talks this weekend did not reach a deal.

Ahead of the talks, the International Monetary Fund called for governments to work together, and reactivated an emergency lifeline first used to rescue ailing economies during the 1997 Asian financial crisis.

In Washington, officials said the United States could follow Britain's decision to take preferential shares in troubled banks, effectively part-nationalising them, in a bid to increase liquidity in the credit markets.

The G7 meeting in Washington was to bring together finance ministers and central bankers from the United States, Germany, Japan, France, Britain, Italy and Canada.

US President George W. Bush vowed to take "strong action" over the crisis and emphasized "our common desire to work with our European friends to develop a best-as-possible common policy."

Marc Chandler, analyst at Brown Brothers Harriman, said despite the grim outlook, the G7 still had options available.

"We are hesitant to spread rumours, but there is increasing speculation that the G7 meeting could take another major step and that is to guarantee all interbank lending," he said.

Lending between banks is at a standstill because banks fear other banks might fail, and want guarantees that contracts will be respected. The freeze is strangling credit throughout the global economy.

A wave of emergency interest rate cuts, rescue packages and massive injections of capital into money markets in recent days, have all failed to assuage the panic.

The European Central Bank (ECB) headquarters in Frankfurt. With anxiety still high in markets, US authorities raised the prospect Thursday of direct capital injections into troubled banks and Europe's central bank opened up an unlimited cash lifeline. (AFP/File/Dominique Faget)

On Thursday, the European Central Bank opened an unlimited cash lifeline for credit-starved institutions to be available "for as long as needed" and at least until January 20, 2009.

In addition, the European Central Bank said on Friday it had pumped more than 93 billion dollars (69 billion euros) into interbank money markets to get banks through the weekend.

The crisis of confidence in the markets and among lenders has been underpinned by increasingly pessimistic forecasts for the global economy.

In a biannual report on the world economy, the International Monetary Fund forecast that the US would fall into recession this year, barely grow in 2009 and risked performing even worse than expected given current uncertainty.

The impact of the crisis on demand for oil was also highlighted by an announcement by the International Energy Agency (IEA) that there had been a sharp fall in demand for oil.

Thursday's huge sell-off on Wall Street sent US indexes to fresh five-year lows, with the Dow Jones Industrial Average plunging 7.33% to end below 9,000 for the first time since 2003. -by Roland Jackson