World Stocks Sour on US Plans

Thursday, Feb 12, 2009  |  Updated 5:15 AM CDT
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World Stocks Sour on US Plans

AP

The US stimulus plan's troubles are reverberating throughout world markets.

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HONG KONG – World stock markets fell Thursday, with Japan's Nikkei index losing over 3 percent, amid doubts that U.S. rescue plans costing trillions of dollars will soon restore the health of the world's largest economy.

Investors seemed more wary than relieved after U.S. lawmakers finally agreed overnight to a $790 billion stimulus bill designed to pull the economy out of recession by creating jobs through spending and tax cuts. President Barack Obama could sign the measure within days.

The news came a day after the Obama administration's newly revised program to bail out the financial sector with some $2 trillion in funding met with widespread skepticism. Investors criticized the plan for what they said was a lack of specifics.

With economies in the U.S. and elsewhere still showing signs of stress, investors are increasingly pessimistic about the ability of governments to turn around the global economy anytime soon.

"The problem is the U.S. is such a big hole. People are afraid that even more trillions of dollars will not help much," said Francis Lun, general manager of Fulbright Securities Ltd. in Hong Kong. "What they've done doesn't seem to have worked so far. We are facing another crisis, the banks are still insolvent and the economy isn't getting better."

As trading underway in Europe, Britain's FTSE 100 was down 0.8 percent, Germany's DAX lost 1.8 percent and France's CAC 40 shed 1.5 percent. U.S. futures were down, suggesting a lower open on Wall Street. Dow futures fell 58 points, or 0.7 percent, to 7,838 and S&P500 futures slipped 7.6, or 0.9 percent, to 823.90.

In Asia, Tokyo's Nikkei stock average tumbled 240.58 points, or 3 percent, to 7,705.36 — the lowest in nearly three months — as Japan's market caught up with region-wide losses Wednesday after being closed for a national holiday. Hong Kong's Hang Seng lost 310.91 points, or 2.3 percent, to 13,228.30.

South Korea's Kospi lost 0.9 percent, Shanghai's main index was off 0.6 percent and Taiwan's benchmark retreated 2.4 percent. However, Australia's key stock measure gained 1.2 percent.

Several markets recovered some of their losses by the afternoon as investors digested major corporate and economic news.

Aluminum Corp. of China, the world's biggest aluminum producer, announced it was investing some $19.5 billion in global miner Rio Tinto Group — China's biggest overseas investment ever. The state-controlled Chinese company, also known as Chinalco, will take a bigger stake in the Australian firm by setting up a joint venture and purchasing convertible bonds.

The deal, coming at a time when China's economy is being squeezed by the global economic crunch, reflects Beijing's determination to line up future resources it needs to sustain economic growth. It will also help Rio Tinto pay down some of its nearly $39 billion in debt.

The company's shares jumped 5.6 percent in Shanghai, but lost 4.8 percent in Hong Kong. Shanghai and Hong Kong price moves often differ, with mainland China's markets strongly reflecting local sentiment because they are largely closed to foreigners.

Also in China, new figures showed Chinese banks extended a record 1.62 trillion yuan ($237 billion) in loans in January, more than double the year before, as lenders heeded government calls to loosen credit controls to help revive the economy. Facing an abrupt slowdown due to plunging demand for China's exports, regulators have sought to boost liquidity after years of trying to rein in lending.

Elsewhere, South Korea's central bank Thursday cut its key interest rate to a record low 2 percent from 2.5 percent to boost the country's fast-fading economy. As with other export-driven Asian economies, South Korea has been hit by declines in global consumer demand. Its exports plunged a record 32.8 percent in January.

Overnight in New York, the Dow Jones industrial average rose 50.65, or 0.6 percent, to 7,939.53 in a choppy a session as investors digested the flood of news coming from Washington.

Broader stock indicators also rose. The Standard & Poor's 500 index rose 6.58, or 0.80 percent, to 833.74, and the Nasdaq composite index rose 5.77, or 0.4 percent, to 1,530.50.

Oil prices rebounded slightly after a steep fall overnight, with light, sweet crude for March delivery up 21 cents at $36.15 a barrel in Asian trade. The contract shed $1.99 to settle at $35.94 a barrel on the New York Mercantile Exchange on Wednesday.

In currencies, the dollar weakened to 89.91 yen, down from 90.30 yen, and the euro traded at $1.2860 compared to $1.2881.

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