Stocks tumble, gold at record after Fed cut
Sunday March 16, 8:48 pm ET
By Miranda Maxwell
SYDNEY (Reuters) - Asian stock markets fell on Monday and gold prices hit a record high as a surprise rate cut by the U.S. Federal Reserve failed to calm investors panicked by the demise of Bear Stearns (NYSE:BSC - News).
U.S. stock index futures briefly gained but later extended losses, falling sharply despite news the Fed unexpectedly cut its discount rate by 25 basis points and JPMorgan Chase (NYSE:JPM - News) will buy U.S. investment bank Bear Sterns for just $2 a share in scrip.
Investors said the acquisition of Bear Stearns only highlighted the depths of the problems plaguing U.S. financial markets. The fall of one of the largest investment banks added to concern credit market turmoil was yet to run its full course and ongoing turbulence could drag the U.S. economy into a recession.
"The credit crunch has still some way to go and I think there will be a few more months of strife ahead," said Stephen Roberts, Chief Economist at Lehman Brothers in Sydney.
JPMorgan acquired Bear on Sunday after having provided emergency funding to Bear on Friday via the Federal Reserve.
The Fed cut its discount rate on Sunday and launched a new discount window facility for primary dealers.
"It's a short-term measure. They are using all the tools they can and I don't expect any market rebound," said Kumar Palghat, managing director of Australian fixed income manager Kapstream Capital.
Japanese stocks fell, with the benchmark Nikkei (Osaka:^N225 - News) down 3.1 percent at 11,855.90 and the broader TOPIX (^TOPX - News) down 3.3 percent at 1,153.67 at 8:35 EDT.
Australian shares fell 2.4 percent (ASX:^AXJO - News), dragged down by financials. The market had trimmed losses to just 0.4 percent at one point.
S&P 500 futures (SPc2) fell 20 points and Dow Jones industrial average futures (DJc2) sank 142 points. Nasdaq 100 (NDc2) futures tumbled 32.75 points.
The U.S. dollar briefly trimmed losses on the news but then started tumbling anew, falling over 2 percent on the day against the Japanese yen to below 97 yen.
The euro meanwhile vaulted to a record peak over $1.58, up nearly 1 percent on the day.
U.S. Treasury futures rebounded from early losses, with June T-note futures (TYv1) hitting the highest since mid-2003.
Gold struck a record peak of $1,015.10.
Just my opinion...
