Tokyo: Asian stock markets plummeted on Tuesday as the collapse of Lehman Brothers Holdings Inc. and the takeover of Merrill Lynch and Co. Inc. spurred fears of an imminent global financial crisis.
European markets extended losses in early trading after falling sharply on Monday.
Tokyo’s Nikkei 225 Index sank nearly 5% to 11,609.72, its lowest close since July 2005, while Hong Kong’s blue-chip Hang Seng Index shed 5.4% to its lowest point in nearly two years.
Both markets—Asia’s two biggest—had been closed for holidays on Monday, when news first broke about the turmoil on the Wall Street that has dramatically changed its landscape.
“Today was a bloodbath,” said Alex Tang, head of research at Core Pacific-Yamaichi International (H.K.) Ltd, who noted that trading volume was its highest in months. “This was panic selling... They are dumping shares, they just want to liquidate their positions.”
South Korea’s main index slumped 6.1%, Taiwan’s benchmark was off 4.9%, and China’s Shanghai Index dropped 4.5% to a nearly two-year low. But markets in India was essentially flat and that in Indonesia managed to eke out gains.
To ensure liquidity, Japan’s central bank on Tuesday injected 2.5 trillion yen (Rs1.08 trillion) into money markets and issued a statement vowing to take measures to maintain stability in the country’s financial markets.
The dollar also took a hard hit, sinking to 103.83 yen on Tuesday afternoon in Asia from mid-107 yen levels before the weekend.
The Japanese unit of Lehman Brothers on Tuesday sought bankruptcy protection at a Tokyo court after the 158-year-old firm filed for bankruptcy in New York the previous day.
Despite a flurry of last minute negotiations over the weekend, the storied New York investment bank was unable to find an investment partner to throw it a lifeline amid $60 billion (Rs2.79 trillion) in soured real estate holdings.
Investors were further shaken by equally stunning news that Merrill Lynch, one of the world’s most famous brokerage firms, sought to avoid a similar fate with a $50 billion transaction to become part of Bank of America Corp.
Indeed, the crisis appeared to be far from over. American International Group Inc. (AIG), the world’s largest insurer, was fighting for its survival after downgrades from major credit rating firms, adding pressure as AIG seeks billions of dollars to strengthen its balance sheet.
On Monday, the Dow Jones Industrial Average, the main US stock index, fell more than 500 points, or 4.4%, to 10,917.51—its worst point drop since after the 11 September 2001 terror attacks.
US stock futures were down modestly, suggesting the Wall Street could fall further.
The Tokyo Stock Exchange halted securities and derivatives trading by Lehman Brothers a day after Japan’s financial watchdog ordered its local unit to suspend operations.
Regulators in Hong Kong also announced they were restricting Lehman Brothers’ trading activities, allowing the firm to deliver securities to clients for any trades in the last two days and to settle any outstanding futures positions with clients by day’s end.
South Korea’s financial regulator suspended some operations of two local units of Lehman Brothers.
Financial issues faced intense selling pressure across Asia in the wake of Lehman’s demise.
In Tokyo, investors unloaded shares in institutions named as some of Lehman’s biggest lenders, including Aozora Bank Ltd, Mizuho Corporate Bank Ltd, Shinsei Bank Ltd and Mitsubishi UFJ Financial Group Inc.
In China, the overnight debacle on Wall Street outweighed any positive impact from a decision by China’s central bank late on Monday to cut a key lending rate.
“Almost all the banking shares dropped by nearly 10% today (Tuesday) because investors don’t think the interest rate cut will really boost the market,” said Wang Xiaodong, deputy manager of United Securities Llc. in Beijing.
Kelly Olsen in Seoul, Ray Lilley in Wellington, Rohan Sullivan in Sydney, Mari Yamaguchi in Tokyo, Jeremiah Marquez in Hong Kong and Elaine Kurtenbach in Shanghai contributed to this story.