September 18, 2008

Investors cautious amid turmoil

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Investors cautious amid turmoil

Asian share prices have continued to fall as confidence remains low

European stocks rise in cautious trade as Lloyds TSB’s takeover of UK lender HBOS dispelled some of the gloom hanging over financial markets.

Asian shares had earlier fallen sharply on fears that more companies could fall victim to the global financial crisis.

London’s FTSE 100 index was up 0.8% at 4,951 points shortly after the open and France’s main stock index rose 0.6%.

In Asia, Tokyo’s Nikkei share index dropped by 2% while Hong Kong’s main stock index slid by 7%.

Share indexes in Shanghai, Taiwan and India fell by between 3 and 5%.

Hong Kong’s Hang Seng index dropped below the 17,000 mark and Australian shares closed 4% lower.

On Wednesday, the Dow Jones index of leading US stocks fell by more than 4%.

Flight to safety

Brokers in Japan say the markets are in freefall because investors fear the US government’s efforts to stop the turmoil in the financial system are not working.

As a result, investors are looking for safer places to put their money than stocks and shares.

Traders saw plummeting shares on Wall Street on Wednesday

Many Japanese institutions have assets insured by AIG, the insurance company that was rescued by the US government on Tuesday.

And in Singapore, for the second day running, hundreds of AIG policyholders queued up outside its offices trying to surrender or cancel policies they fear could turn out to be worthless.

Feverish speculation

The US Federal Reserve’s AIG rescue package followed the collapse earlier this week of 150-year-old US investment bank Lehman Brothers, which sent shockwaves through the world’s financial community and sparked a global share price plummet.

Another investment bank, Merrill Lynch, has since been sold off to Bank of America. And in the UK, HBOS is being taken over by Lloyds TSB in a £12.2bn deal.

There has also been feverish speculation about the future of two other leading US banks – Morgan Stanley and Washington Mutual.

The New York Times quoted unnamed sources as saying an auction for Washington Mutual was under way. The Wall Street Journal reported that both banking giant Citigroup and Wells Fargo had expressed an interest in a takeover.

Meanwhile the Reuters news agency reported that Morgan Stanley, the second largest US investment bank in the US which on Wednesday saw a quarter of its value wiped off its share price, had held preliminary takeover talks with Wachovia.

None of the companies involved has made any comment on the speculation and no negotiations can be confirmed.

Banks take action

The Bank of Japan has injected another 1.5 trillion yen ($14.4bn; £7.9bn) into money markets to help stabilise them. Australia took similar steps.

The Japanese central bank’s injection was the third consecutive day it had tried to shore up cash markets as the Nikkei trades at a three-year low.

Across Asia, central banks have already pumped $33bn into money markets this week in an attempt to allay investors’ concerns and ensure the supply of funds does not dry up.