February 27, 2024

Asian Markets Fall on Disappointment Over Fed’s Move

The Hang Seng index in Hong Kong led declines across the region, diving 4.5 percent by midafternoon.

The Nikkei 225 index in Tokyo closed 2.1 percent lower, the Kospi in South Korea fell 2.9 percent and the S.P./ASX 200 in Australia dropped 2.6 percent.

European markets followed suit Thursday, with losses of more than 2 percent in morning trading.

The across-the-board declines came from investors’ increasing pessimism over the U.S. and European economies, analysts said.

“It’s just a repetition of the same old stories we have been reading for the past year and a half,” said Stephen Davies, chief executive of Javelin Wealth Management in Singapore.

In Europe, a sovereign debt crisis is threatening to bankrupt Greece and investors fear that Italy will default on its debts, crises that could imperil the banking system across the continent.

On Wednesday the Fed announced it would buy long-term Treasury bonds and sell short-term bonds to help stimulate lending and growth.

But the U.S. central bank also said a complete economic recovery was still years away, adding that the U.S. economy has “significant downside risks to the economic outlook, including strains in global financial markets.”

The Fed pointed to a number of long-term problems in the American economy, including high unemployment and a depressed housing market.

The announcement sent stocks on Wall Street falling. The Dow Jones closed 2.6 percent lower on Wednesday; Standard Poor’s 500 index sank 2.9 percent and the Nasdaq composite dropped 2 percent.

Analysts said the declines in Asia on Thursday showed that investors were unsure that the Fed’s decision would fully address the economic slowdown in the United States.

Meanwhile, House Republican leaders suffered a surprising setback on Wednesday when the House rejected their version of a stopgap spending bill, leaving unclear how Congress will provide money to keep the government open after Sept. 30 and aid victims of a string of costly recent natural disasters.

The export-driven economies in Asia, like South Korea, are most vulnerable to the European and American economic challenges, said Tim Condon, head of Asia research at ING Group in Hong Kong.

Durable goods like automobiles and ships will be hurt most, he said.

Additionally, investors were beginning to worry that China’s rate of growth may slow, said Dariusz Kowalczyk, senior economist and strategist at Crédit Agricole CIB in Hong Kong.

The aversion to riskier assets helped prop up the U.S. dollar in foreign exchange markets on Thursday. The Australian dollar fell closer to parity with the U.S. dollar, and the euro was trading at $1.3550, down from around $1.36 in late New York trading.

The yield on 10-year U.S. Treasuries hit a new low of 1.82 percent during Asian trading.

“It really comes down to political immaturity in both the U.S. and Europe,” said Mr. Davies of Javelin Wealth Management. “The increasing chance of a U.S. recession and European implosion has shortened the odds of an overall second recession.”

Christine Hauser contributed reporting from New York and Robert Pear and Jennifer Steinhauer from Washington.

Article source: http://www.nytimes.com/2011/09/23/business/global/daily-stock-market-activity.html?partner=rss&emc=rss

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