World Markets Fall as US Bailout Taking Time

TOKYO - World stock markets tumbled Monday as investors reacted coolly to Washington's $700 billion bank bailout deal, recognizing that cleaning up the bad debt mess will take a long time and likely drag on global economic growth for the foreseeable future.

Anxiety about spreading fallout from the U.S. financial meltdown grew on news that Belgium, the Netherlands and Luxembourg pledged more than 11 billion euros ($16 billion) to Dutch-Belgian bank and insurance giant Fortis NV to keep it from insolvency.

As trading opened in Europe, Britain's FTSE 100 sank 2.2 percent, France's CAC-40 and Germany's DAX both fell 2.6 percent.

"There's an increasing realization that the cleanup and the mending of all that's gone wrong is going to take an extended period to work through, and we're going to see an extended recovery period," said Jamie Spiteri, senior dealer at Shaw Stockbroking in Sydney.

Hong Kong's Hang Seng Index plunged 4.31 percent to 17,876.41, and Tokyo's benchmark Nikkei lost 1.3 percent to close at 11,743.61. Key indices in India, Thailand, South Korea and Australia also fell.

"They're worried that another fire is starting in Europe," said Castor Pang, an analyst at Sun Hung Kai Financial in Hong Kong, referring to the Fortis news.

After days of intense talks, the White House and Congressional leaders agreed Sunday to a $700 billion public bailout of the ailing financial industry after lawmakers insisted on sharing spending controls with the administration of President George W. Bush.

The biggest U.S. bailout in history, which goes to the House for a vote Monday and to the Senate later in the week, would give the administration broad power to use taxpayers' money to purchase billions of home mortgage-related assets held by cash-starved financial firms.

But even if the plan helps stabilize credit markets, the outlook for the U.S. economy remains grim, with unemployment at a five-year high of 6.1 percent and expected to climb higher. That's likely going to weaken demand for exports from Asia and Europe.

Furthermore, there are plenty of banks still in trouble, and it may take time before the bailout plan helps them.

Takahiko Murai, equities general manager at Nozomi Securities in Tokyo, said investors are questioning the effectiveness and details of the plan, including the government's ultimate purchasing price of the bad assets.

"If it passes as expected, the focus will begin to shift to the real economy," Murai said.

U.S. stock index futures fell, suggesting Wall Street would open lower Monday morning. Dow Jones industrial average futures were down 171 points to 10,976, while Standard & Poor's 500 index futures were down 20.8 points to 1,193.

Asian marine transport names posted big declines after a key shipping index plunged 10 percent Friday amid slowing global trade and a recent drop-off in iron ore demand in China. The Baltic Dry Index, which measures drybulk shipping rates on 40 routes across the world, fell 417 points to close at 3,746 — marking one of its biggest one-day declines.

Japan's Mitsui O.S.K. Lines Ltd., the world's largest cargo shipper, slumped 6.03 percent, and Nippon Yusen K.K. shed 6.58 percent. Major shipper Cosco Pacific Ltd. fell 6.0 percent in Hong Kong.

Hong Kong property issues took a hard hit after HSBC said it was raising mortgage rates by 50 basis points. Hang Lung Properties Ltd. retreated 4.5 percent, and Sung Hung Kai Properties Ltd. was off 5.1 percent.

In currencies, the dollar strengthened to 106.28 yen Monday afternoon in Asia from 105.95 yen late Friday. The greenback also rose against the euro, which bought $1.4392.

Exchanges in mainland China were closed for a national holiday, and Taiwan markets were shut due to a typhoon.


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