Hong Kong: Asian shares slumped in their biggest daily fall in nearly a month, while the US treasury gained after a US task force rejected turnaround plans for auto makers General Motors Corp. (GM) and Chrysler Llc.
Standard and Poor’s stock futures dropped and European shares fell about 3% in early trade, with investors also spooked by news on Sunday that Spain would bail out regional savings bank Caja Castilla La Mancha, marking yet another official rescue of a firm hit by the global crisis.
The announcement by the White House autos panel marked a stunning reversal for GM and Chrysler and raises the prospect of bankruptcies that could further debilitate the already ailing US economy.
The news sparked a fresh wave of risk aversion among investors, boosting the yen and the US treasury and setting back a stocks rally that started in earlier March on optimism the global economy may be bottoming out and the US may finally be getting to grips with toxic debt on banks’ books.
News on the US auto firms comes ahead of a busy week that will feature the Group of Twenty gathering in London, a policy meeting by the European Central Bank, and employment data in the US.
“Anything that spells of rejection in terms of bailout these days is not treated very well. We’ve seen threats of this before on other things, and it tends to spook the market a bit,” said David Spry, a research manager at FW Holst and Co. Pty Ltd in Sydney.
The MSCI Index of Asia-Pacific stocks outside Japan extended its slide, falling more than 4.5% after the autos news.
The gauge had its biggest daily percentage fall since a 4.3% decline on 2 March.
Asian stocks went on to hit their 2009 low on 4 March, before staging a spectacular recovery that as of last week had raised the Asia MSCI Index outside Japan by 26%.
US stock futures were also hit on Monday, sending the S&P?500?down 2%.?In?Japan,?the Nikkei average slumped 4.5%. “We are still not out of the woods as far as the economic landscape goes. Job losses are mounting in the US and I feel the developments of late represent the economy is just coming off the bottom,” said Stephen Roberts, an economist for Nomura Holdings Inc. in Sydney.
The US autos task force determined that the turnaround plans submitted by GM and Chrysler could not ensure their viability. The fate of GM has been of particular concern. The US administration pledged only to fund operations at the biggest US auto maker for the next 60 days, instead of granting GM’s request for up to $30 billion (Rs1.5 trillion) in loans.
Rick Wagoner, GM’s chief executive since 2000, also resigned under pressure from the US task force.
Asian stock indices accelerated losses on the news. The main indexes in Hong Kong, Singapore and India fell at least 4%, while Australia, South Korea and Taiwan lost 1.9-3.4%.
China’s main stock index fell 0.7%, dragged down by Aluminium Corp. of China Ltd and Baoshan Iron and Steel Co. Ltd after the industry giants posted poor fourth quarter earnings.
But loose money market liquidity continued to encourage buying in tier II stocks by short-term speculators, helping China outperform the other indexes in the region.