The New Nation - Internet Edition

Staff Reporter

Despite US$250 billion purchase plan by the US government, the world stock markets again faced tumble yesterday after downbeat U.S. economic data spread fears of a more protracted and sharp global slowdown than initially expected.

The Asian stocks markets fall down by 10 per cent and oil prices dropped to a one-year low on Thursday following the sharp downward trend set by US and European markets, amid growing fears of a global recession.

New York's Dow Jones index saw its worst one-day fall on Wednesday since October 1987, closing almost 8 per cent down while the London and other European markets witnessed big fall on Wednesday.

Japan's Nikkei index fell almost 10 per cent in early trading while shares in Australia, South Korea and Singapore dropped by at least 5 per cent on Thursday. Hong Kong opened nearly 7 per cent down and Shanghai by nearly 4 per cent.

Relative to current earnings expectations, Asian stocks are oversold. However, upcoming corporate outlooks could influence whether estimates get cut, potentially adding another weight on equities and economic prospects. Financial market volatility as investors greatly reduce their exposure to risk has weighed on the global economic outlook, which has fed back into markets in a damaging circle.

"International funds are pulling back and putting their money into whatever is safest, Treasuries or cash or paying off existing debt," he said.

Japan's Nikkei dropped 9.55 per cent, weighed down the most by stocks of companies most exposed to global demand such as Canon Inc and Honda Motor Co.

The president of Toyota Motor Corp on Wednesday said the business environment has deteriorated beyond earlier expectations and predicted the key North American car market would remain sluggish through next year.

The MSCI index of Asia-Pacific shares outside of Japan fell 6 percent, locked in a downtrend that had brought

it to a near 4-year low last week. The index is down by half so far this year.

Hong Kong's Hang Seng index was down 6.1 per cent, with the biggest losses racked up by commodity-related companies, such as Shenhua, China's top coal producer.

Overnight U.S. stock markets slid across the board, with the S&P 500 index dropping 9 per cent after a report showed U.S. retail sales dropped the most in more than three years.

"Bottom line, there is little positive to say about this market. The equity markets are impacted by the lack of liquidity in financial assets, terribly oversold conditions as well as unknown visibility on the macro economy," said Thomas Lee, chief U.S. equity strategist with JPMorgan, in a note.

Despite mixed messages from the Federal Reserve on the near-term outlook for interest rates, the futures market reflects a 50/50 chance the benchmark U.S. interest rate could drop to 1 percent this month from 1.50 per cent.

Even the most deft investors have been flipped by the ferocity of selling and risk reduction in markets. Citadel Investment Group, one of the world's largest hedge funds, said September was the single worst month in the history of the company and warned of more volatility in weeks to come.

The yen pared some its overnight gains against the dollar and euro.

The U.S. dollar rose 0.5 per cent from late U.S. trade to 100.25 yen. The euro gained 0.6 per cent to 135.25 yen and edged up 0.2 per cent against the dollar to $1.3494.

Anticipation of much slower growth and thereby reduced demand knocked raw materials prices, including metals.

The benchmark Shanghai copper and Shanghai zinc fell by their 4 per cent daily limit at the opening, while aluminium touched its downside limit before recovering. London copper futures fell 5.2 per cent early, extending a 7 per cent overnight loss.

The November U.S. light crude future fell for a third day to a new 13-month low near $73 a barrel on Thursday, down 1.9 per cent, amid continued worries that a deepening economic slowdown will cut into already weakening demand.

The US government Monday last unveiled its plan to initially buy stocks in nine major U.S. banks under its US$250 billion purchase plan to ensure the money circulation of the banks. The news could positively affect the market immediately with upward trend of price index. But it could bring sustainability of the world stock market.