Asian markets fell 4 percent Monday and the yen surged to a 2-year high against the euro as investors doubted the scattered European response to the financial crisis and the $700 billion U.S. bank bailout could prevent a global recession.
Concerns about whether the $700 billion rescue plan approved by the U.S. Congress last week, would be quickly implemented, and whether it would be enough to shore up the economy, left investors seeking safety in U.S. and Japanese government bonds and buying yen and Swiss francs.
The safe-haven yen surged across the board as deepening fears that the credit crisis was taking a bigger toll on the global financial system prompted an array of investors to dump risky positions at any cost. The Australian dollar crumbled nearly 5 percent at one point to a four-year low of 77.14 yen as traders cited heavy selling by a wide variety of investors, from Japanese institutional accounts and margin traders to hedge funds. The euro tumbled more than 3 percent to a two-year low of 140.30 yen. The big drop in higher-yielding currencies dragged the dollar down more than 2 percent to 102.98 yen, a four-month low.
Oil prices fell around $2 to just below $92 a barrel, dragging down prices of metals and grains, on expectations damage from dysfunctional financial systems in developed economies would almost certainly push them closer to recessions.
While the United States bought breathing room in the credit crisis with a series of takeovers and bail-outs, Europe fought at the weekend to contain the fallout. Germany said it would guarantee more than 500 billion euros ($693 billion) in private deposit accounts to protect savers from the worst financial crisis since the 1930s. Austria and Denmark quickly followed suit.
German officials clinched a rescue deal for lender Hypo Real Estate, Belgium and Luxembourg found a buyer for Fortis in BNP Paribas, and UniCredit, Italy's second-biggest bank, announced plans to raise capital.
The Nikkei 225 Average sank 4.25 percent after falling nearly 5 percent at one point as investors, spooked by signs of growing global economic gloom, dumped shares across the board. Financials were hit hard, with top bank Mitsubishi UFJ Financial Group losing 9.2 percent. Exporters such as Sony and Toyota Motor also weighed on the Nikkei as the yen soared against the dollar, the euro and many other major currencies, stirring concerns that a stronger Japanese currency would hit their sales abroad.
South Korea's KOSPI closed 4.3 percent down, hitting a 21-month low, led by banks as investors ignored last week's approval of a U.S. financial rescue plan to fret about a liquidity crunch and the global economic fallout from the credit crisis. Financials fell across the board on deepening concerns about their foreign currency liquidity, sending Shinhan Financial Group down over 7 percent. Exporters also fell on worries about the real economy. Hynix Semiconductor, dropped over 6 percent.
Australian shares finished down 3.3 percent, to a near three-year low, weighed down by mining and bank stocks, as investors fretted about global growth prospects amid the ongoing credit crunch. Holiday-thinned volume steepened the falls for stocks caught in the selloff, with no sector untouched. The two heaviest-weighted sectors, materials and financial services, led the market lower, with top miner BHP Billiton and top lender National Australia Bank both declinging.
Hong Kong shares ended almost 5 percent lower after a steep drop in U.S. jobs data suggested the world's largest economy may be in a recession, threatening global growth. Chinese insurer Ping An fell 8 percent after announcing a $2.3 billion impairment losson its investment in troubled Belgian-Dutch financial group Fortis.
Singapore's Straits Times Index sank 5.6, led down by the city-state's three banks UOB, DBS Group and OCBC, after the finance minister warned the economic slowdown may last several quarters.
China's Shanghai Composite Index, resuming trade today after a week-long national holiday, dropped 5.2 percent in response to sliding overseas markets and fears of a global economic slowdown. Banks were weak with the biggest bank, Industrial & Commercial Bank of China, down sharply. Fresh efforts by Chinese regulators to support the market -- an announcement thatmargin trade and short-selling of shares would soon be launched on a trial basis, and the reopening of the medium-term corporate bills market -- slowed but could not halt the drop,