Asian markets pared back losses Tuesday, but were still firmly in the red, putting them on course for the biggest monthly decline in more than a decade after U.S. lawmakers rejected a $700 billion plan to end financial panic and stave off recession. Both Japan and Australia finished over 4 percent lower.
Fear gripped markets as investors dumped emerging market assets, sought stability in government debt and confronted the prospect that the crisis of confidence in the bank industry will persist, further damaging the global economy.
September has been laced with explosive events that have turned Wall Street upside down and threatened the global financial system, including the bankruptcy of Lehman Brothers, the rescue of American International Group and the demise of the U.S. investment banking model.
Credit markets were locked up as banks hoarded U.S. dollar funds while the costs of protection against defaulting on borrowings and restructuring soared. This was despite central banks outside the U.S. setting up special currency swap programs to meet high demand for dollar funding. Investors run to the yen as a haven.
Investors around the region scrambled to eliminate any risk in their portfolios, loading up on traditional safe harbors like short-term U.S. government debt and gold. Gold prices in the spot market were largely unchanged at $902.10 an ounce, after rising 5 percent to touch a two-month high overnight of $920 an ounce. The dollar U.S. dropped to a 4-month low against the yen . The euro was also down against both the yen and dollar .
Fear among traders and the gloomier outlook for the global economy weighed on oil and industrial metals such as copper. U.S. crude futures extended
losses below $96 a barrel in the Asian session, after diving almost 10 percent in New York trade.
In more bad news just before the market's open, data released showed Japan's jobless rate rose more than expected in August, while household spending dropped more than forecast, adding to the gloom for an economy teetering on the brink of a recession.
The Nikkei 225 Average closed down 4.1 percent, hitting a three-year low. Exporters and banks were particularly hard hit. Japanese financials were predictably battered, but traders noted the nation's megabanks still remained above lows hit earlier this year. Mitsubishi UFJ Financial Group, Japan's largest bank, was down 7 percent. The financial crisis has deepened fears about the world economy, sending exporters such as Canon, Honda Motor, Sony and Toyota Motor all declined. High tech shares also fared poorly. Kyocera, becoming the second-largest drag on the Nikkei 225 by volume weight.
South Korea's KOSPI, which was down nearly 6 percent at one point, recouped almost all its losses to close just half a percent in the red. Financials slid across the board in Seoul markets, with Shinhan Financial and Korea Exchange Bank the biggest losers. Separately, South Korea's Financial Services Commission said it will ban the short-selling of shares for the time being after U.S. lawmakers rejected the financial rescue plan.
Australian shares hit lows not seen in nearly three years. The S&P/ASX 200 Index was closed 4.3 percent lower, with resource stocks the biggest losers. BHP Billiton shed almost 10 percent while Rio Tinto dropped 11.5 percent.
Hong Kong's Hang Seng Index pared early declines of as much as 6 percent to close 0.8 percent higher on bargain hunting, which helped major market movers like Chinese banking stocks come off lows. BYD stood out, rising 20.9 percent to build on Monday's jump after a unit of Midas-touch investor Warren Buffett's Berkshire Hathaway picked up a 10 percent stake in the rechargeable battery manufacturer.
Singapore's Straits Times Index,also off its lows closed 0.3 percent in the red, led by losses in property and financial stocks. CapitaLand slumped 7.4 percent after spate of recent analysts downgrades. Southeast Asia's biggest lender DBS Group fell 0.7 percent.
Chinese markets are closed for the Golden week holidays. They will reopen next Monday, October 6.