The stock markets across the Asian region closed sharply lower, with South Korea's KOSPI plunging 6 per cent, Hong Kong's Hang Seng plummeting 5.4 per cent and Japan's Nikkei 225 index tumbling 5 per cent. However, the stock market in Indonesia pared early losses and moved into positive terrain.
Wall Street fell overnight after Lehman filed for bankruptcy protection and bank of America agreed to buy Merrill Lynch. Crude oil prices continued to fall Tuesday as investors dumped oil. In late Asian trade, oil was quoted at $92.78 a barrel.
On the currency front, the dollar fell to the upper 103-yen levels in late Tokyo deals from the mid 104-yen range in early trade and mid 107-yen range late Friday.
The South Korean won fell to its lowest level against the U.S. dollar since 2004. The local unit closed the session at a 49-month low of 1,160.0 a dollar, down 50.9 from Friday's close of 1,109.1 a dollar.
The Australian dollar shed 2.81 U.S. cents, closing at its lowest level since August 17, 2007, when it finished the local session at US$0.7741-0.7747. The Aussie finished Tuesday's session at US$0.7886-0.7890, down from Monday's close of US$0.8167-0.8171.
The Kiwi was sold-off as investors shied away from riskier currencies following the turmoil in the financial sector. In late local trade, the New Zealand dollar was quoted at US$0.6505, down from Monday's close of US$0.6687.
Coming back in equities, the Japanese stock market closed sharply lower, reversing Friday's gains. The market remained closed on Monday due to a public holiday. Banks and insurers fell sharply also due to growing concerns over American International Group's financial standing. The benchmark Nikkei 225 index closed down 605.04 points or 4.95% at its lowest level since July 8, 2005 of 11,609.72. The broader Topix index lost 59.63 points or 5.1% to finish at 1,117.57.
On the economic front, Tokyo condominiums for sale declined by an annual 38.8% in August compared to the previous month's 44.5% decrease, according to data released by the Japanese Real Estate Economic Research Institute. In August, there were 10,504 unsold units on the Tokyo market, a fall from July's 10,885.
Meanwhile, Japan's consumer confidence dropped to a new record low of 30.1 in August from 31.4 in July, results of the latest survey by the Cabinet Office showed. The reading fell for the fifth month in a row. The report said the headline index along with the sub-indices of overall livelihood, income growth and the willingness to buy durable goods were the lowest since June 1982.
The Chinese market closed sharply lower, led by banks, with the benchmark Shanghai Composite Index finishing below the 2,000 mark. The key index closed down 93.04 points or 4.47% at 1,986.64, its weakest close since November 17, 2006. The Shenzhen composite index decreased by 1.39% to 570.74.
Worries over interest spreads, after the People's Bank of China cut the benchmark one-year lending rate by 27 basis points to 7.20% effective today, also hurt investor sentiment. It was the first reduction in China's key interest rate since February 2002.
The central bank also announced that the commercial bank reserve requirement will be cut by one percentage point to 16.5% from September 25, but the cut will not apply to China's four big lenders, Bank of Communications and the postal savings bank.
In Hong Kong, the Hang Seng Index went down by 5.44% at 18,300.61, while the Hang Seng China Enterprises Index plunged by 7.4% to 9,236.58.
The Australian stock market closed lower, extending losses for the second straight trading session. The market started off sharply lower, but clawed back some ground as bargain hunting among major banks and resources stocks emerged in late trade.
The benchmark S&P/ASX 200 index closed down 66.9 points or 1.4% at a two and a half year low of 4,750.8 after falling as much as 2.7% to its lowest level since December 2005 in early trade. Meanwhile, the broader All Ordinaries index lost 75.2 points or 1.5% to finish at 4,799.8.
On the economic front, the minutes of the September 2 RBA Monetary Policy Committee meeting released today showed that the Board felt a general slowdown in demand was unfolding. According to the central bank, the opposing forces of weak consumption and strong investment were visible, affecting the nation's economy when it reversed its tight money policy this month. The meeting concluded with a 25 basis point reduction in the benchmark interest rate to 7.00%.
The New Zealand stock market closed sharply lower, extending losses for the second consecutive trading session. The benchmark NZX 50 index plunged 92.60 points or 2.87%, following Monday's 1.26% fall, as investors dumped stocks on concerns about the turmoil in the U.S. financial sector. The broader NZX All Capital index lost 96.91 points or 2.98% to finish at 3,255.90.
The South Korean market closed sharply lower, reversing Friday's sharp gains. The market remained closed on account of a public holiday on Monday. The benchmark Korea Composite Stock Price Index or KOSPI plunged 90.17 points, or 6.1%, to finish the session at 1,387.75.
Earlier in the day, the Financial Services Commission, South Korea's financial regulator, said it banned the two Lehman units in Seoul from selling their assets and repaying debts until 15 December.
On the economic front, South Korea's import price growth, in local currency terms, eased to an annual 42.6% in August, a report issued by the Bank of Korea showed. Import price growth eased from July's 50.6% increase, which was the largest annual growth since February 1998. On a monthly basis, import prices dropped 4.4% in August on lower oil prices. Further, the central bank report revealed that export prices grew 21.9% on a yearly basis, while it declined 1.4% month-on-month.
In India, frenzied buying in index pivotals coupled with short covering after five straight days of fall helped key benchmark indices erase sharp early losses and post marginal gains in highly choppy session. Higher Dow & Nasdaq futures and crude oil at 7-month low also aided the rebound.
The BSE 30-share Sensex rose 19.40 points or 0.14% to 13,550.67 as per provisional closing. The Sensex opened with a downward gap of 479.54 at 13,051.73, also its day's low. At the day's high of 13,556.03 hit in late trade, the Sensex rose 24.31 points. The S&P CNX Nifty rose 11.60 points or 0.28% to 4,084.50 as per provisional closing. Nifty recovered from a low of 3919.35. At the day's low, Nifty had lost 153.55.
Elsewhere, Indonesia's Jakarta Composite index was up by 0.95% to 1,735.64; Singapore's Straits Times index was down by 1 % at 2,461.43; and Taiwan's Taiex dropped by 4.9% at 5,756.59.
In the other part of the world, European shares fell again, with financials under more pressure after U.S. insurance giant AIG was downgraded by ratings agency Standard & Poor's, although hopes for a U.S. interest rate cut kept shares off three-year lows.
Of national indexes, the U.K. FTSE 100 index fell 1.4% to 5,132.10, the German DAX 30 index lost 1% to 6,001.23 and the French CAC-40 index fell 0.6% to 4,145.97. However the market plunged further as the time passed. At 12.53 GMT U.K. FTSE 100 index hit a level not seen for three years, trading down 3.2% at 5,036.40. The last time the index traded at this level was in July 2005. The German DAX 30 index fell by 1.8% to 5,953.30, while the French CAC-40 index was down by 2% to 4,086.90.
On the economic front there was slue of economic data. Starting with German Inflation shown by the consumer price, which surged by 3.1% in August 2008 from a year earlier which is lower than July's 3.3% figure. Core consumer prices excluding energy rose 1.9% on the year in August 2008.
In UK, the consumer price inflation remained more than 1% above the Bank of England's 2.0% target for the fourth straight month in August, forcing BOE Governor Mervyn King to write another letter of explanation to the treasury. The annual CPI rate rose to a fresh 16-year high of 4.7% in August – a 16 year high figure. Adding more concern was the core CPI, which excludes energy, food, alcoholic beverages and tobacco, rise more sharply, up 2.0% on the year after a 1.9% rise in July. The annual increase hasn't been higher since January 1997. At the same time the retail price index, which has historically been used as a guide for pay settlements, rose 4.8% in August, slowing from an increase of 5.0% in July. In monthly terms, the RPI rose 0.3%.
In a letter written to the government the Bank of England Governor Mervyn King said that the British inflation would peak soon near 5 percent but remain above the central bank's 2 % target well into next year, especially if sterling's fall is sustained. In an open letter to the government published after data showed inflation hit a 16-year high of 4.7 percent in August, King said the level of interest rates needed to get inflation back to target was "highly uncertain" and he expected to have to write several more such letters in the next year.
In the meantime, UK showed some heating on the inflationary front the regional indicator showed some sign of relief. The annual rate of euro-zone inflation eased in August as energy prices dropped sharply and food price growth slowed for the first time in over a year. The prices in the euro zone fell 0.1% on the month and rose 3.8% on the year in August.
Some other important data release the house prices in Britain fell 0.3 percent on a year ago in July after a 0.6% annual gains in June. Meanwhile Switzerland's industrial production increased by 6.1% in August from a year earlier while the industrial orders increased by 11.5% during the same time period.
Looking ahead the day is scheduled to release some of the most awaited economic events. The day is left with the data on US inflation, which includes the consumer price index for the month of August. It will be followed by the net capital inflows as well as the total capital inflows for the month of July. To show the status of housing market we will eagerly await the NAHB housing price index for the month of August. Last but the least Fed will declare its interest rate decision.
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