London: Fears that stresses in credit markets and the world economy as a whole are deteriorating despite central bank help battered financial markets on Thursday, sinking global stocks and sending the dollar tumbling.
The dollar hit a record low against the euro and fell below 100 Japanese yen for the first time in 12 years, underlining concerns among monetary officials about extreme currency moves.
Oil, meanwhile, was at a record high above $110 a barrel and gold was closing in on $1,000 an ounce.
In India, gold struck new highs on Thursday in tandem with foreign markets, attracting many sellers of old gold to the market, dealers said.
“There is selling pressure... There are about 10 to 15 people in front of me,” said Kapilkumar of Chokshi Arvind Jewellers, a prominent buyer of old gold in Mumbai’s Zaveri Bazaar.
A large trader said the sharp gains had frozen demand.
“We are all sitting comfortably... There is no demand at all,” said Prithviraj Kothari, managing director of Riddisiddhi Bullions Ltd.
In Europe, shares were down around 2%, while in Japan equities lost more than 3%.
In the latest credit market fallout, an affiliate of US-based buyout firm Carlyle Group, Carlyle Capital Group, defaulted on about $16.6 billion of debt.
“This is going to be a nail-biting day,” said Paul Mendelsohn, chief investment strategist at Windham Financial Services in the US. “The dollar seems to be going into a free-fall,” he added.
Investors shrugged off any remaining vestiges of the euphoria experienced earlier in the week from US Federal Reserve-led moves to provide liquidity to credit markets.
Much of the focus was on the sinking dollar.
“We are entering dollar crisis mode,” said Derek Halpenny, currency economist at BTM-UFJ in London. “Looking at the markets there is a complete loss of confidence and that’s because the markets are concerned over the US financial sector and ultimately what the (Federal Reserve) will be forced to do to support that sector,” Halpenny said.
The tumbling dollar, meanwhile, poses a dilemma for the hawkish European Commercial Bank, which is holding off cutting interest rates because of concern about inflation pressures.
Rising oil price is one of the reasons for the pressure, but the price is spurred on by a weak dollar as this makes oil cheaper in other currencies.
US crude for April delivery rose 66 cents to $110.58 a barrel, above the all-time peak of $110.20 hit on Wednesday.
“We’re looking at the US dollar, we’re looking at speculation, we’re looking at geopolitical. Those three things tying together are defying fundamentals,” said Peter McGuire, managing director of Commodity Warrants Australia.
Global stocks shrugged off the last vestiges of euphoria from Fed-led moves earlier in the week to provide liquidity to credit markets, renewing their downward route on worries about the health of the financial sector.