Tokyo: Stocks fell around the world and the dollar tumbled after the US Federal Reserve cut its discount interest rate at an emergency meeting and JP Morgan Chase and Co. agreed to buy Bear Stearns Companies Inc. for $2 (Rs82) a share. Bonds climbed.
UBS AG posted its biggest drop in more than nine years in Zurich and Japan’s Mitsubishi UFJ Financial Group Inc. fell to the lowest in four years. Europe’s Dow Jones Stoxx 600 Index and Japan’s Nikkei 225 Stock Average sank to the lowest since 2005, while the Standard and Poor’s 500 Index decreased 1.7% on concern other financial companies will run short of cash. The dollar slid to record lows against the euro and the Swiss franc and to the weakest in 12 years against the yen.
“This is a serious crisis,” said David Goldman, senior portfolio strategist at Asteri Capital in New York and former head of debt research at Banc of America Securities Llc. “Something is systemically very wrong and we’re at a very dangerous moment.”
The Fed lowered the rate on direct loans to commercial banks by 0.25 percentage points to 3.25% to help restore confidence in financial markets shaken by the collapse of Bear Stearns and more than $195 billion in writedowns and credit losses worldwide. The action coincided with JPMorgan buying Bear Stearns for about $240 million, less than a 10th of its value last week.
The S&P 500 slumped to 1,266.89 as of 9:56am in New York. The Stoxx 600 fell 3.7% to 292.79, the lowest since November 2005, while the MSCI Asia Pacific Index lost 2.3% to 132.83. The Nikkei slid 3.7% to the lowest since August 2005.
Global stock markets lost $2.4 trillion in market value from a peak in October as of 14 March. That partly reflects the slump in the US dollar.
The dollar dropped to as low as 95.76 yen, a level not seen since August 1995, from 99.09 on 14 March. It slid to all-time lows of $1.5903 per euro and 0.9658 Swiss francs. The Australian and New Zealand dollars fell on speculation investors will spurn higher-yielding currencies as financial turmoil deepens.
“The Fed is throwing the dollar out of the window,” said Jim Rogers, chairman of Rogers Holdings, in a Bloomberg Television interview from Singapore.
US Treasury notes rose, causing the 10-year yield to fall 10 basis points to 3.36% as traders bet the US central bank will lower its benchmark rate by a full percentage point when it meets tomorrow.
Gold for immediate delivery rose to a record $1,033.90 an ounce as investors sought a haven against the dollar. Crude oil gained as much as 1.4% to $111.80 a barrel before retreating on signs the US economy is in a recession.
“The dollar is facing a credibility crisis,” said Koji Fukaya, a senior currency strategist at the Tokyo unit of Deutsche Bank AG, the world’s largest currency trader.
Financial shares fell, leading declines in the MSCI World Index. UBS, Europe’s biggest bank by assets, dropped 14% to 24.52 Swiss francs, the most since September 1998. Mitsubishi UFJ Financial, Japan’s biggest lender by market value, slumped 4.8% to 789 yen, the lowest since 10 February 2004.
Bear Stearns plunged 88% to $3.64 after JPMorgan agreed to buy the bank. JPMorgan added 3.8% to $37.92.
Lehman Brothers Holdings Inc., the fourth largest US securities firm, lost 18% to $32.15. Merrill Lynch and Co., the third largest, declined 9.3% to $39.46. Bloomberg
Rishaad Salamaat in London, Emma O’Brien in Wellington, Theresa Barraclough, Toshiro Hasegawa, Stanley White and Tomoko Yamazaki in Tokyo contributed to this story.