TOKYO (AFP) — World markets suffered fresh turmoil Monday as investors dumped both stocks and the dollar on fears more US banks could be vulnerable to the credit crisis that crippled Bear Stearns, dealers said.
They said an emergency cut by the US Federal Reserve to its discount rate and a weekend deal for JPMorgan Chase to buy Bear Stearns at a fire-sale price had added to a sense of crisis sweeping through global financial markets.
The volatility spilled over into commodities Monday as oil prices soared to fresh highs and gold prices jumped as investors looked to safe-havens.
Tokyo stocks plunged by more than 4.0 percent at one point before recovering some ground to close 3.7 percent lower, ending below the key 12,000 points level for the first time since August 2005.
Hong Kong was down 3.7 percent in afternoon trade, Shanghai declined 3.6 percent, Seoul gave up 1.6 percent and Sydney declined 2.3 percent.
Aside from the Bear Stearns news, the market was also pressured by rumours that Lehman Brothers is facing some financial problems, said Peter Lai, a director at DBS Vickers in Hong Kong.
"The panic selling was mainly from individual investors, though some institutions also joined the selling spree," he said.
The rout came as the dollar slumped to a fresh record low against the euro and a 12-year trough against the yen, as traders braced for a hefty cut to the Fed's main federal funds rate later this week.
The Federal Reserve late Sunday cut its discount rate a quarter-point for certain financial institutions and said it would offer immediate liquidity to the brokerage system "to promote orderly market functioning."
But the US measures have so far failed to calm markets, said Kazuhiro Takahashi, equity department head at Daiwa Securities SMBC in Japan.
JPMorgan Chase announced it would acquire Bear Stearns for about two dollars a share, making the sale worth about 236 million dollars, a tiny fraction of the storied bank's stock market value of 3.54 billion dollars on Friday.
Bear Stearns, among the hardest hit by the collapse of the US subprime or high-risk mortgage market, said Friday it was getting an emergency loan from JPMorgan Chase, backed by the Federal Reserve, due to liquidity problems.
Wall Street's Dow Jones index fell 1.6 percent to close at 11,951.09 on Friday following the bailout of the fifth-largest US investment bank.
"When you have financial institutions like Bear Stearns needing to be bailed out, people start questioning everything," said Andrew Sekely, head of Australian equities at Intersuisse.
The fear among investors is that other banks may also be experiencing a cash crunch, dealers said.
"The US market will continue to be hostage to fresh developments related to the subprime loan and credit crisis," Mizuho Research Institute analyst Koji Takeuchi said.
"The appreciation of the yen, combined with surging crude oil prices, has strengthened concerns about the profits of exporters, making them susceptible to selling," Takeuchi said.
New York crude oil futures closed at a new high of 111.80 dollars in Asian trade on Monday as the dollar slumped.
Gold prices opened markedly higher in Hong Kong, hitting 1,002.00-1,003.00 US dollars an ounce, up from Friday's close there of 995.00-995.50. Gold touched 1,007.40 dollars at the London Bullion Market on Friday.
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