Global markets slump on US credit woes

Asian and European stock markets plunged on Thursday as investor sentiment was hammered by resurgent credit concerns, the plunging dollar and record high oil prices, dealers said.

Global financial markets were also roiled after a troubled fund backed by United States private equity giant Carlyle said it expected its creditors to seize its remaining assets after failing to strike a deal on its financing.

Analysts said that sparked fears that the worst of the global credit crunch was not over—despite initial euphoria after a huge cash injection that was announced by the US Federal Reserve and other central banks on Tuesday.

In Asia on Thursday, Tokyo closed down 3,3%, Hong Kong shed 4,8%, Seoul lost 2,6%, Sydney sank 2,3% and Shanghai declined 2,4%.

In midmorning trading in Europe, London tumbled 2,11%, Frankfurt fell 2,45% and Paris slid 2,33%, as trade was also hit by profit-taking.

In the foreign exchange market, the troubled US currency dived under the key ¥100 level for the first time in 12 years, and hit a fresh record low against the European single currency amid mounting US economic troubles.

A strong euro and yen make exports from Japan and the eurozone more expensive, while surging oil prices weigh on group costs and spark inflation. The price of oil hit a record high above $110 per barrel on Wednesday.

Markets were also hit by news that Dutch-listed investment fund Carlyle Capital Corporation had failed to reach a deal with its creditors and had defaulted on debt of nearly $17-billion.

“The bad news on Carlyle may be a negative factor that could spell trouble for the US market,” said Shinko Securities strategist Tsuyoshi Segawa.

Shares in the troubled fund, linked to private equity giant Carlyle Group, was suspended in Amsterdam Friday, fell 70% when they resumed trading on Thursday after being briefly suspended.

“The problem is that Carlyle Capital Corp is unlikely to be the last hedge fund in difficulty and indeed there are a number of rumours in regard to other hedge funds in similar difficulties that will only further depress investor sentiment over the coming days and weeks,” said Lee Hardman, analyst at the Bank of Tokyo-Mitsubishi UFJ.

Wednesday’s euphoria generated by the Fed’s plan to pump $200-billion into stressed financial markets faded as investors started to question whether the action will do much to ease the US economic troubles.

The move “will definitely be better for the banking sector but that does not deal with the issues in the market—the US housing slump and [poor] jobs data,” said Carmen Lee, research head at OCBC Investment Research in Singapore.

“The threat of recession is still very much alive and there are a lot of factors that need to be taken care of.”

On Wall Street, the Dow Jones Industrial Average closed down 0,38% at 12 110,24 on Wednesday.

Investors were also worried about surging oil prices, which stoke inflationary pressures and could limit the US Federal Reserve’s room to slash interest rates further to try to shore up the faltering economy, dealers said. - AFP

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