Asian markets plunged to their weakest levels in almost eight weeks Monday, but stocks were off session lows. Japan closed 3 percent lower and Hong Kong fell 5 percent.
In a shock announcement, JPMorgan Chase said it would buy stricken rival Bear Stearns for just $2 a share in an all-stock deal valuing the fifth largest investment bank at about $236 million, a fraction of its value last week. Under the deal, the Federal Reserve will provide special financing and has agreed to fund up to $30 billion of Bear Stearns' less liquid assets.
On the heels of JPMorgan's purchase of Bear Stearns, the U.S. Federal Reserve cut its discount rate by 25 basis points to 3.25 percent effective immediately and announced a new program to lend directly to other big financial firms. The new lending facility for big Wall Street firms with which the Fed deals directly in financial markets, will be open for business Monday and will be kept in place for at least six months.
The U.S. dollar sank below the 97 yen level and hit a record low against the euro . Spot gold also rallied to a record high of $1,030 an ounce on the weak dollar and worries about financial market troubles.
The plethora of financial news, coupled by a sinking dollar revived fears that a long-lasting global credit market crunch would claim more financial companies. Banks across the region were battered. Citigroup's Japan listing lost 8 percent. Japan's Mitsubishi UFJ Financial, Hong Kong's HSBC Holdings, South Korea's HanaFinancial, and Australia's Macquarie Group were all plunging.
Japan's Nikkei 225 Average ended down 3.7 percent to about a 2-½ year closing low, dragged down by exporters such as Toyota Motor as the dollar hit a 13-year low against the yen, casting a cloud over their earnings outlooks.
Australia's ASX/S&P 200 Index finished down 2.3 percent to a fresh one-and-a-half-year closing low on Monday, led by financials such as Commonwealth Bank of Australia. But, gold miners bucked the downward trend to rise after the price of the precious metal raced to an historic. Newcrest Mining and Lihir Gold both advanced.
South Korea's KOSPI fell 1.6 percent, its lowest close since May 4, 2007, pressured by a falling won and a regionwide selloff sparked by growing worries about a global credit crisis. Losses were led by financials such as Kookmin Bank. The South Korean won ended local trade down 3.1 percent against the dollar, the biggest daily percentage loss since a 5.1 percent fall on Aug. 6, 1998, on renewed worries about the global financial turbulence.
Hong Kong stocks got mauled, shedding as much as 1,000 points at one point, as the Bear Stearns sale and Fed cut sparked a broad selloff and pushing blue chips to levels last seen in August when credit market turmoil sent global markets reeling. Property stocks such as Cheong Kong and Sun Hung Kai were among the worse hit.
Singapore's Straits Times Index slipped over 1 percent as investor fears that the worst of the credit crisis is not over were reignited. Financials such as top lender DBS Group and SGX led losses.
China's Shanghai Composite Index fell more than 3 percent, led by financials, as already weak market sentiment took another blow from Friday's tumble on Wall Street and a Chinese central bank warning of possible further monetary tightening.