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Asian Markets Close Lower, Fed Disappoints

CNBC.com
Wednesday, 12 Dec 2007 | 4:54 AM ET

Asian markets closed mostly lower Tuesday, after the U.S. Federal Reserve's decision to cut interest rates failed to shore-up investor confidence. South Korean and Australian markets managed to finish slightly higher, however.

The Fed cut its benchmark funds rate to 4.25 percent from 4.5 percent. Market players, expecting a bolder half-point move, were disappointed by the modest cut -- there were hopes for a more aggressive 50 basis point reduction.

Financial stocks bore the brunt of the selloff as worries about further credit-related losses flared up. The sector had been lifted recently by hopes that cash infusions for some big firms such as UBS would help them tide over ructions in credit markets.

Australia's top investment bank Macquarie Group, South Korea's Shinhan Financial Group, Japan's Mitsubishi UFJ and Citigroup's Tokyo shares were all sharply lower.

Japanese shares pared much of their early losses as many investors thought the sharp initial selloff following a modest Federal Reserve interest rate cut had gone a bit too far. The Nikkei 225 Average closed 0.7 percent lower. The Nikkei was down as much as 2 percent at one point of the session.

Stock investors watch stock movement at a stock exchange in Chengdu, China.
AP
Stock investors watch stock movement at a stock exchange in Chengdu, China.

South Korea's KOSPI wiped out early losses to end slightly higher, led by telecom stocks and retailers, and as market rumors mounted that the Labor Ministry had bought a large amount in shares during the day. A Labor Ministry official confirmed the ministry injected some funds to buy stocks, but declined to disclose the amount.

Australian shares finished 1 percent lower, led down by U.S.-exposed companies such as Westfield Group. But, the S&P/ASX 200 Index is up 17 percent in 2007 and is on course to log its fifth straight year of double-digit growth.

Hong Kong stocks fell 2.4 percent, led by a slide in property plays, on disappointment with the Fed's 0.5 percent cut. Property stocks plunged, with Hang Lung ending down 3.4 percent and China Overseas losing 4.9 percent. Fears over further credit-related losses also rattled investors, helping to send shares in global lender HSBC down sharply.

Singapore's Straits Times Index pared back losses, but closed lower by 1.1 percent, on fears of a slowdown in the U.S. largest economy.

China's Shanghai Composite Index was down 1.5 percent in response to a tumble in Hong Kong and global markets, and as banks and real estate shares continued falling because of concern about monetary tightening.