Asian markets took a beating Thursday, but emergency actions by central banks and governments around the world saw a late-session rebound in the Hong Kong and Singapore markets.
The seismic shift on Wall Street continued apace, with frenetic consolidation in the financial sector in the world's largest economy, sending the MSCI all-country world stocks index to its lowest since November 2005.
Investors piled into short-term U.S. Treasuries, pushing yields down close to zero as investors bailed from money market funds. Even the Federal Reserve had to receive a $40 billion injection from the U.S. Treasury to help it manage its balance sheet, after the Fed offered $85 billion in loans to rescue American International Group on Wednesday.
The latest -- No. 2 U.S. investment bank Morgan Stanley is in talks with Chinafor a fresh infusion of funds and top U.S. savings and loan Washington Mutual is reportedly up for sale. In addition, a source familiar with the matter said Britain's Lloyds TSB agreed to buy rival HBOS, reflecting the unstable landscape that has contributed to gold's 18 percent surge in the last week.
The U.S. dollar fell against the euro and the yen , with investors exiting risky assets for the safety of government bonds and gold. Gold surged above $870 an ounce and crude oil futures for October is trading at the $97 a barrel level.
Japan's Nikkei 225 Average closed down 2.2 percent to a three-year low as credit fears roiled global markets despite efforts by the U.S. government to prevent a financial meltdown. Financial shares such as top lender Mitsubishi UFJ Financial Group plunged as their Wall Street peers were pounded and exporters like Honda Motor and Sony also fell on worries about the impact of financial crisis on the global economy.
Seoul shares closed 2 percent lower, recovering slightly from losses of over 4 percent in the session, after U.S. shares dived on persistent financial fears and sent Asian indexes sharply lower. The slide came despite the announcement that South Korea had been upgraded to "developed market" status by the FTSE Group. Financials such as Kookmin Bank led falls, with South Korea's top commercial lender losing 7.12 percent.
Australian shares dropped 2.4 percent as investors continued to dump financial shares on concerns about who could be the next victim of the global credit crisis. Top investment bank Macquarie Group plummeted 23 percent to its lowest level in more than five years, while top lender National Australia Bank touched an 11-year low. Only gold miners defied the gloom, as nervous investors sought refuge in the precious metal. Newcrest Mining was up an impressive 14.5 percent.
The Hang Seng Index, staged a late-session rally to close flat after plunging over 7 percent to hit a 26-month low as investors dumped Chinese financial stocks. Top lender Industrial & Commercial Bank of China, which is reported to have $152 million in exposure to failed U.S. investment bank Lehman Brothers, plummeted 11.7 percent, but also rebounded to close 0.2 percent higher. Investors were encouraged by liquidity actions from the Federal Reserve and other central banks.
Singapore's Straits Times Index was also off its lows to close flat. Investors had sold bank and property stocks such as DBS Group and CapitaLand on fears the credit crisis was deepening.
China's Shanghai Composite Index bounced sharply from early lows to close 1.7 percent lower because of a rebound in banking shares. The index sunk over 6 percent at one point, in response to the turmoil in the global equity markets and financial system.