Asian governments move to halt market slide
Posted: 08 October 2008 1230 hrs

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HONG KONG: Japan and Australia pumped US$15 billion into money markets Wednesday and Hong Kong slashed interest rates, as governments tried to ease the credit crunch pummelling world stock markets.

But like other such moves in recent days, the new measures failed to bring immediate relief as the global sell-off continued in the face of the worst financial crisis since the Great Depression.

"These sorts of measures aren't working anymore," said Hiroichi Nishi, a broker at Nikko Cordial in Japan. "It's like you're trying to pump blood into a heart with clogged arteries."

Japanese stocks were down more than five per cent, Hong Kong opened down 5.1 per cent and Australia was off 4.1 per cent, following a rout on Wall Street overnight as the Dow shed 5.1 per cent to close at a five-year low.

The Bank of Japan injected 1.5 trillion yen (US$14.8 billion) into the money markets, its 16th straight day of intervention, while Australia's central bank pumped in A$1.21 billion (US$856 million).

Governments are trying to keep funds available to fight off the credit crunch, first sparked by the subprime loans mess in the United States that set off a chain reaction of chaos on world markets.

With credit tight, Hong Kong's Monetary Authority said it was cutting its key interest rate by 100 basis points effective Thursday. Australia made a similar move on Tuesday.

Officials said Britain was set to announce a rescue package for its ailing banking industry before markets opened, after key bank shares tumbled 40 per cent on Tuesday amid a global sell-off by panicked investors.

In Washington, the US Federal Reserve said it would buy up short-term debt in an effort to kick-start credit flows, describing the move as "necessary to prevent substantial disruptions to the financial markets and the economy."

And European finance ministers agreed to increase an EU-wide savings deposit guarantee to 50,000 euros from 30,000, saying they would coordinate their response to the financial crisis.

But nothing has worked so far to slow a sell-off on share markets across the globe.

Japan's benchmark Nikkei index has now lost 27 per cent of its value since the start of August.

The Dow Jones Industrial Average slid 5.11 per cent on Tuesday to a five-year closing low, after a global market meltdown on Monday that saw the blue chip index sliding 369-points amid fears of a worldwide recession.

US President George W. Bush discussed the economic meltdown with leaders of Britain, France and Italy, seeking a common strategy ahead of crisis talks between the Group of Seven major economies in Washington on Friday.

"I was on the phone with them this morning to ensure that our actions are closely coordinated. We live in a globalised world - we want to make sure that we're effective," Bush said.

Comments by Federal Reserve Chairman Ben Bernanke did little to calm jittery investors by saying the latest economic data showed the prospects for the US economy had grown gloomier amid the credit crunch and global financial crisis.

"In light of these developments, the Federal Reserve will need to consider whether the current stance of policy remains appropriate," he told business leaders in Washington.

Bank of America economist Peter Kretzmer said the comments offered a clear hint at a rate cut, possibly with other major central banks that could come at a Friday's gathering of G7 finance officials.

Iceland, which has been hit hard by the crisis, meanwhile nationalised its second largest bank, Landsbanki, and gave its biggest, Kaupthing, a US$678-million loan. Its third largest bank was nationalised last week.

Russia also agreed to negotiate a four-billion-euro (US$5.4 billion) emergency loan to help Iceland's fight against national bankruptcy.

The European Central Bank pumped US$50 billion back into interbank money markets, but it said banks sought more than twice that amount.

European stock markets had a mixed performance Tuesday, with gains in Paris and London and a drop in Frankfurt.

The London FTSE 100 index of leading shares rose 0.35 per cent and the CAC 40 in Paris gained 0.55 per cent, while in Frankfurt, the DAX fell 1.12 per cent.

- AFP/yb