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Markets slump on banking worries Markets slump on banking worries
(30 minutes later)
European and Asian stock markets have fallen heavily in reaction to the emergency bail-out of US investment bank Bear Stearns over the weekend. European and Asian stock markets have fallen heavily in reaction to the emergency bailout of US investment bank Bear Stearns over the weekend.
London's FTSE 100 index was down 2.5%, in Paris the Cac 40 slumped 2.6% and Frankfurt's Dax fell 3.4%.London's FTSE 100 index was down 2.5%, in Paris the Cac 40 slumped 2.6% and Frankfurt's Dax fell 3.4%.
European bank shares have been hit. Societe Generale fell 8%, Commerzbank was down 7.5% and HBOS declined by 9%.European bank shares have been hit. Societe Generale fell 8%, Commerzbank was down 7.5% and HBOS declined by 9%.
Asian stocks also fell, with Tokyo's Nikkei average closing 3.7% lower and Hong Kong's Hang Seng slumping 5.2%.Asian stocks also fell, with Tokyo's Nikkei average closing 3.7% lower and Hong Kong's Hang Seng slumping 5.2%.
In Mumbai, the Sensex was down 6.3%.In Mumbai, the Sensex was down 6.3%.
Nervous investors Desperate times need desperate measures Craig JamesEconomist, Commsec
Investors are worried that the collapse of one of Wall Street's biggest names is a sign that the the credit crunch is getting worse, and lending might seize up. Investors are worried that the collapse of one of Wall Street's biggest names is a sign that the credit crunch is getting worse and lending might seize up.
Central banks have been trying restore some confidence to the financial system.Central banks have been trying restore some confidence to the financial system.
The Bank of England on Monday made an extra £5bn ($10bn) available for banks to borrow.The Bank of England on Monday made an extra £5bn ($10bn) available for banks to borrow.
And on Sunday, the US Federal Reserve reduced its discount rate - the interest rate at which banks lend to each other - from 3.5% to 3.25% and offered to buy up the assets of other troubled banks.And on Sunday, the US Federal Reserve reduced its discount rate - the interest rate at which banks lend to each other - from 3.5% to 3.25% and offered to buy up the assets of other troubled banks.
The Fed is expected to lower its general interest rates on Tuesday by up to 1%.The Fed is expected to lower its general interest rates on Tuesday by up to 1%.
"Desperate times need desperate measures. The Federal Reserve is doing what it takes to restore stability and if it means cutting the discount rate on a Sunday night in the US, then so be it," said Craig James, Chief Equities Economist at Commsec in Sydney.
Bear StearnsBear Stearns
Investors' confidence has been hit by the problems at Bear Stearns.Investors' confidence has been hit by the problems at Bear Stearns.
The investment bank was forced to seek emergency funding from the US Federal Reserve last week and was sold over the weekend to JP Morgan Chase for a tiny fraction of its earlier value.The investment bank was forced to seek emergency funding from the US Federal Reserve last week and was sold over the weekend to JP Morgan Chase for a tiny fraction of its earlier value.
The bank got into trouble when other banks refused to lend it money over fears that it had too many bad debts due to the sub-prime mortgage crisis.The bank got into trouble when other banks refused to lend it money over fears that it had too many bad debts due to the sub-prime mortgage crisis.
The Fed has agreed to take over up to $30bn of Bear Stearns' assets, removing the risk for JP Morgan.The Fed has agreed to take over up to $30bn of Bear Stearns' assets, removing the risk for JP Morgan.
The quick sale failed to calm investors' nerves who, this week, will receive earnings announcements from other big US investment banks, including Lehman Brothers, Goldman Sachs and Morgan Stanley.The quick sale failed to calm investors' nerves who, this week, will receive earnings announcements from other big US investment banks, including Lehman Brothers, Goldman Sachs and Morgan Stanley.
"There is persistent credit uncertainty. Market players have been repeatedly let down which shows the sub-prime mortgage problems are so deep-rooted," said Atsuji Ohara, global strategist at Shinko Securities in Tokyo."There is persistent credit uncertainty. Market players have been repeatedly let down which shows the sub-prime mortgage problems are so deep-rooted," said Atsuji Ohara, global strategist at Shinko Securities in Tokyo.
"Just buying an investment bank does not solve the problem," he added."Just buying an investment bank does not solve the problem," he added.
Dollar woesDollar woes
Worries about the credit crisis and the health of the banking industry also undermined the dollar.Worries about the credit crisis and the health of the banking industry also undermined the dollar.
It fell to 95.72 yen, its lowest level in more than 12 years. The euro hit a record against the dollar, buying $1.5903.It fell to 95.72 yen, its lowest level in more than 12 years. The euro hit a record against the dollar, buying $1.5903.
The weak dollar boosted commodities, with oil rising to another record, light sweet crude traded at $111.80 before falling back.The weak dollar boosted commodities, with oil rising to another record, light sweet crude traded at $111.80 before falling back.
The dollar is also falling because of the expectation that the US Fed will cut interest rates further, making it less attractive to hold dollars as opposed to other currencies.The dollar is also falling because of the expectation that the US Fed will cut interest rates further, making it less attractive to hold dollars as opposed to other currencies.