Asian and European stock markets were down sharply Monday amid growing alarm over the world's financial system after a seismic shake-up on Wall Street, with Lehman Brothers saying it would file bankruptcy and Merrill Lynch being sold to Bank of America.
In Europe, the FTSE index was down 2.72% in London, the Paris CAC-40 was off 3.52% and Germany's DAX 30 index of blue chips sagged 2.99%.
The dollar sank against euro, which rose to US$1.4299 from US$1.4215 late Friday in New York. The pount rose against the dollar, to US$1.8052 from US$1.7937.
Asia's biggest stock exchanges in Japan, Hong Kong and South Korea were closed for holidays, but every market open was deep in the red. India's Sensex tumbled 5.4%, Taiwan's benchmark plummeted 4.1%, Australia's key index was down 2% and Singapore dropped 2.9%.
The declines came as Wall Street and the U.S. government took a series of steps aimed at bringing an end to the credit crisis that has roiled the global financial system for more than a year.
Troubled U.S. investment bank Lehman Brothers Holdings Inc. (LEH) announced it would file for bankruptcy after prospective buyers, including Barclays PLC, backed away from a deal over the weekend. Also, Bank of American Corp. (BAC) said in a statement early Monday that it would acquire Merrill Lynch & Co. (MER) in an all-stock transaction worth about US$50 billion.
Additionally, giant U.S. insurance company American International Group Inc. (AIG) said Sunday it was discussing options with outside parties to improve its business. The Wall Street Journal said on its website Sunday that AIG may announce a turnaround plan Monday that would involve selling assets such as its aircraft leasing business.
A global consortium of banks, meanwhile, announced late Sunday a US$70 billion pool of funds to lend to ailing financial companies, a move geared toward preventing a worldwide panic on stock and other financial exchanges. The U.S. Federal Reserve chipped in with more largesse in its emergency lending program for investment banks.
The shake-up was needed to restore confidence in the markets, said Lorraine Tan, director at Standard & Poor's equity research in Singapore.
"A lot of people are getting burned," she said. "It's better to get this out of the system. Hopefully for the U.S. this could be it as far as potential failures of investment banks."
Investors fearful that the financial distress could spread to Asia to sent regional bank stocks plunging.
Macquarie Group Ltd., Australia's largest investment bank, plummeted 9.6%. In Taiwan, Shin Kong Financial Holding lost 6.9%.
U.S. stock index futures were down sharply, suggesting that shares would drop when trading opened in New York Monday morning. The Dow Jones industrial average futures index was down 2.6%.
The dollar was also down sharply, falling to 105.69 yen from 107.92 yen late Friday. The euro jumped to US$1.4432 from US$1.4229 Friday.
Oil fell below $100 a barrel in Asian electronic trading after Hurricane Ike inflicted minimal damage to oil installations on the Texas coast. Light, sweet crude for October delivery declined US$2.10 to US$99.08 a barrel.
On Friday, the contract slipped to US$99.99 per barrel briefly before closing at US$101.18. The last time Nymex crude had traded below the $100 mark was April 2.
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