High-yield/macroeconomics (fka YIELD)

[Preciouslife1]

AP///World markets slump as Nikkei hits 26-year low
Monday October 27, 8:19 am ET
By Pan Pylas, AP Business Writer
World markets slump again as Tokyo's Nikkei falls to 26-year low on surging yen..

http://biz.yahoo.com/ap/081027/world_markets.html

LONDON (AP) -- European stock markets fell heavily Monday after the Nikkei index in Japan closed at its lowest in 26 years as the financial crisis raised recession fears and drove up the yen, piling the pressure on the country's exporters.

Tokyo's Nikkei 225 index closed down 6.4 percent to 7,162.90 -- the lowest since October 1982 -- with exporters like Toyota Motor Corp. and Sony Corp hit hard. The losses came despite a report that the government was considering massive capital injection into struggling banks in a bid to calm jittery financial markets.

"Worries about the impact of the surging yen on Japanese export earnings have hit the Nikkei hard," said Julian Jessop, chief international economist at Capital Economics.

"This in turn has led to sharp falls in European markets even when, as on Friday, the U.S. had closed higher the day before," he added.

Benchmarks in Britain, Germany and France trading down more than 4 percent. The FTSE 100 index was 190.97 points, or 4.9 percent, lower at 3,693.39, with heavyweight oil stocks BP PLC and Royal Dutch Shell down 5.1 percent and 4.7 percent respectively as oil prices continue to plummet despite last week's decision by the OPEC oil cartel to cut production.

Germany's DAX was down 200.24 points, or 4.7 percent, at 4,095.43 despite an 80 percent rise in the share price of Volkswagen AG following news that Porsche AG wants to increase its stake in the car manufacturer.

France's CAC-40 was the worst performing European index, down 216.34 points, or 6.8 percent, at 2,977.45, with car manufacturers heavily sold off after gloomy updates last week. Renault SA shares were 8.7 percent lower, while Peugeot SA shares were down 7.3 percent.

Dow futures were down 268 points, or 3.2 percent, at 7,994. Standard & Poor's 500 futures were down about 4 percent.

Mounting concerns about the yen and the effect of the financial crisis on currency markets prompted the world's seven leading industrial nations to issue a statement Sunday warning about the "recent excessive volatility" in the value of the Japanese currency, which is rising against the U.S. dollar towards the 90 yen level and near 13-year highs.

"We continue to monitor markets closely, and cooperate as appropriate," the G7 said.

The statement has raised the prospect of coordinated intervention to stem the yen's appreciation and could be the precursor to joint interest rate reductions too to help calm markets and provide some impetus to the stalling global economy. The U.S. Federal Reserve is already expected to cut its benchmark interest rate a half percentage point to 1 percent at a two-day meeting that ends Wednesday.

"The G7 statement has increased the chance of early coordinated rate cuts this week," said Hans Redeker, global head of FX strategy at BNP Paribas.

The yen has appreciated in part because it is seen as a safe haven for investors fleeing turmoil elsewhere because many think the Japanese economy will be less hit by the global recession.

The euro and the pound continued to drop, with the pound 3.0 percent lower at $1.5464 and the euro down 1.3 percent down at $1.2461. The euro is under pressure from fears about banks' exposure to emerging markets and expectations the European Central Bank will cut interest rates.

Economic data this week is likely to further stoke concerns about the global economy. Earlier Monday, the well-respected Ifo Institute in Germany reported that its main activity index fell to a five-year low 90.2 in October.

Monday's sharp stock market declines in Asia came amid another round of government measures to boost markets. In South Korea, the central bank slashed its key interest rate Monday by three-quarters of a percentage point -- its biggest cut ever -- to prevent Asia's fourth-largest economy from lurching into recession, while Australian and Hong Kong central bankers injected funds into their markets to ensure liquidity.

In mainland China, the benchmark index slumped to its lowest level in more than two years as investors reacted to dismal earnings reports. The Shanghai Composite Index lost 6.3 percent, or 116.27 points, to 1,723.35. It is now down about 72 percent from its peak about a year ago.

Hong Kong's Hang Seng Index tumbled 12.7 percent to 11,015.84, its lowest close in more than four years and biggest daily decline since 1991.

In the Philippines, the key index plummeted 12.3 percent to 1,713.83 points, triggering a circuit-breaker that automatically halted trading for 15 minutes.

Only South Korea's market managed to eke out gains, perhaps in part because of the big rate cut there. The benchmark Kospi ended 0.8 percent higher at 946.45.

In Europe, the International Monetary Fund said Sunday it had reached a tentative agreement to provide Ukraine with $16.5 billion in loans and announced that emergency assistance for Hungary had cleared a key hurdle.

In oil, crude prices weakened after OPEC's move to cut production in an attempt to halt the declines. Light, sweet crude for December delivery was down $1.95 to $62.20 a barrel. Oil prices have plunged more than 57 percent from a record $147.27 in mid-July.

AP reporters Jeremiah Marquez in Hong Kong and reporters Tomoko A. Hosaka in Tokyo, Elaine Kurtenbach in Shanghai, Hrvoje Hrankski in Manila and Kelly Olsen in Seoul contributed to this report.