World shares tumble as Bush fails to calm US recession fears
2008-01-21

Nations Singapore Germany Australia South Korea Hong Kong City Frankfurt Sydney Hong Kong States Hessen People George W. Bush Event 2007 Global Credit Crunch U.S. Markets Category US Fed Reserve

Global stock markets plunged Monday, with Tokyo tumbling to its lowest level in more than two years as US President George W. Bush's tax plan to revive the world's largest economy disappointed investors.

After heavy losses in Asian trade, it was the turn of the European markets to suffer, with the main bourses posting losses of between three and five percent by midday as investors headed for the exits, dealers said.

They said that after high hopes that Bush would announce strong measures to prevent the US economy going into recession, the markets did not find enough to offset all the bad news coming through on the banks and the collapse of the US housing market.

"Investor scepticism over the impact of a temporary tax cut in saving the US economy from a sharp slowdown in economic growth prompted heavy selling" in equities, said Derek Halpenny of The Bank of Tokyo-Mitsubishi in London.

Tokyo's benchmark index closed down a hefty 3.86 percent, hitting the lowest point since October 2005. London's FTSE 100 meanwhile dived 3.83 percent in morning trade as it fell under 5,700 points for the first time since July 2006.

Frankfurt declined 5.02 percent and the Paris market tumbled 4.55 percent and stood under 5,000 points for the first time since August 2006.

The foreign exchange market, however, reacted calmly and some dealers described the shares sell-off as another short-lived, knee-jerk reaction which offered a buying opportunity.

"If (US) interest rates are cut to the extent we and other expect, the likelihood is that today's share prices will look like silly values in 12 month's time, if not before," said Mike Lenhoff, chief strategist at Brewin Dolphin Securities.

Markets were reacting to Bush's plan announced last Friday for 140 billion dollars (97 billion euros) in temporary tax cuts and other measures.

Bush's package "is seen as too late and not strong enough to make an impact," said Najeeb Jarhom, head of research for retail clients at Fraser Securities in Singapore.

"It looks like the US is heading for a recession or may be already (is) in recession, looking at the data," he said.

Asian markets had rebounded at the end of last week on hopes for Bush's stimulus plan but opened sharply down on Monday after seeing Wall Street's lack of enthusiasm to the announcement.

Hong Kong shares closed 5.5 percent lower following a 5.14-percent plunge for mainland Chinese stocks, which fell mostly on concerns that a massive forthcoming share issue by insurer Ping An could hit demand for other equities.

Elsewhere, Indian stocks tumbled 7.41 percent, South Korea closed down 3.0 percent at a five-month low, Singapore shed 6.03 percent and Sydney lost 2.9 percent.

Investors were also uneasy as it would take another day to gauge further reaction in the United States, where markets were closed Monday for the Martin Luther King holiday.

Bush on Friday said his plan would be worth "around one percent" of US gross domestic product and offer tax rebates, incentives for businesses and other measures to encourage growth.

Dealers said they had hoped for surprises in Bush's much-anticipated announcement, particularly on how to salvage the troubled housing market.

US dealers showed their disappointment, with the benchmark Dow Jones Industrial Average ending Friday down 0.49 percent.

"The fall in US stocks reflects investors' demands for more measures, rather than the health of the economy," said Mitsushige Akino, chief fund manager at Ichiyoshi Management in Tokyo.

He said the US and Japanese markets were unlikely to fall significantly from current lows ahead of the January 29-30 meeting of the US Federal Reserve.

The US central bank is widely expected to slash interest rates for the fourth straight meeting given the collapse of the beleaguered housing sector.

The US economy has been hit hard by rising defaults in the "subprime" mortgage sector in which Americans with bad credit records are struggling to pay back housing loans given to them during the housing boom.

"Bush's economic stimulus plan did not surprise the market much and failed to ease investors' worries over the US economy and subprime mortgage problems," said Matthew Kwok, research head at Tanrich Securities.