Global Financial Crisis

Indian stocks fell sharply by nearly 1,000 points to a three-year low in the opening session of trading on Friday, registering a drop of 9%.

The benchmark Sensex fell below 10,400 points in early trade before making a partial recovery.

The crash also affected the rupee which fell to 49 against the US dollar.

Meanwhile, the Reserve Bank of India (RBI) has cut the cash reserve ratio for banks to 7.5% to help generate more cash in the banking system.

It could make more than $12bn of credit available in an effort to resolve the liquidity crunch, the BBC’s Prachi Pinglay in Mumbai (Bombay) says.

Traders say the market is responding to the global markets and the cut in the cash reserve ratio will help reduce the impact of the global crisis.

Some Indian traders fear that many foreign institutional investors, faced with increased problems at home and an unwillingness to take on extra risks, will sell their emerging market holdings and leave the market.

According to official figures, foreign funds have sold shares worth $879m (£445m) in the four days to Thursday, taking total outflow in 2008 to $4.8bn.

Some traders say the figures show that foreign investors are “queuing up to exit” the Indian market.

Source: http://www.bbc.co.uk

Iceland has nationalised its biggest bank, Kaupthing, and suspended trade on its stock exchange in an attempt to prevent further panic in the country.

Kaupthing is the third bank to be rescued by Iceland’s government.

The OMX Nordic Exchange Iceland is closed for trading for two days because of “unusual market conditions” and will reopen on Monday.

Meanwhile, Iceland’s Prime Minister Geir Haarde criticised the UK’s move to freeze Icelandic bank assets.

Mr Haarde said the UK used anti-terrorism legislation to freeze assets in Landsbanki in order to protect UK savings in one of its units, Icesave.

“We do not consider this to be a particularly friendly act. But we understand that the UK authorities need to act in the interests of their citizens,” he said.

Prime Minister Gordon Brown has condemned Iceland’s handling of the collapse of its banks and its failure to guarantee British savers’ deposits.

Mr Brown said it was “effectively illegal” and “completely unacceptable”.

Unusual conditions

Mr Haarde said Iceland had not decided whether to seek help from the International Monetary Fund to weather the crisis.

The country’s Financial Supervisory Authority said it took over Kaupthing to safeguard its domestic banking system.

All domestic deposits at the bank were fully guaranteed, it added.

On Wednesday, the UK Treasury arranged for ING Direct to take over the £2.5bn of deposits of 160,000 UK customers of Kaupthing’s online arm, Kaupthing Edge.

The Swedish central bank had already agreed to provide a loan to the bank’s Swedish arm.

Iceland’s government has now seized control of all three of the nation’s major banks. Landsbanki and Glitnir were taken over earlier this week.

The country of just 300,000 people has struggled to cope with the global financial crisis.

“The action taken… was a necessary first step in achieving the objectives of the Icelandic government and parliament to ensure the continued orderly operation of domestic banking and the safety of domestic deposits,” Iceland’s Financial Supervisory Authority said.

Source: http://www.bbc.co.uk

The People’s Bank of China cut rates for the second time in three weeks, reducing borrowing costs by over a quarter of a percentage point to 6.93pc.

Taiwan and South Korea followed suit today, reducing rates by 0.25pc points.

Australia slashed its borrowing rates earlier this week by one percentage point to 6pc. Japan is the only major Asian country to keep rates on hold at 0.5pc.

However, the Bank of Japan injected 2 trillion yen (£11.67 bn) into the money markets on today, adding emergency funds for a 17th straight business day.

In response, Japan’s Nikkei index was up 1.25pc by early afternoon in Tokyo, a day after suffering its biggest fall since the 1987 crash. In Hong Kong, share prices rose by 1.1pc, while the benchmark Shanghai Composite index gained 1.59pc. Singapore was up by nearly 1pc and Seoul added 0.2pc.

The mood remained tense, however, after disastrous losses across the region on Wednesday. The black mood continued in Australia, where the Sydney stock exchange fell 2.2pc, and Indonesia, where trading was suspended for the second day in a row.

Daisuke Uno, a market strategist at Sumitomo Mitsui Bank in Tokyo, said the interest rate cuts may not be enough to stem the panic, which is spreading from the West to Asia.

Central banks “had to take the action after watching the chain reaction of the market plunges, but a half-point cut was such a stingy move.”

There were more fears that a recession in the West would badly affect Asian exports. Steel mills in China have asked Mount Gibson Iron, a major Australian iron ore supplier, to delay some shipments, a move than sent the company’s shares down by 32pc.

Japan’s core machinery orders, a key measure of capital spending by the country’s companies, slid 14.5pc in August, the fastest drop in more than two years.

Japanese Prime Minister Taro Aso called for an additional economic stimulus package “very urgently” to shore up the world’s second-largest economy.

However, Toyota saw its share price rebound, rising 6.7pc after investors judged yesterday’s (weds) sell-off overdone. Toyota said its profits may be down by 40pc because of weak sales in the US.

The financial crisis has also presented China with the opportunity to snap up bankers with expertise in global capital markets. Domestic Chinese investment banks told state media that they would be on the hunt for staff who have been laid off in Wall Street or London.

Source: http://www.telegraph.co.uk

Markets tanked Thursday - with the Dow falling nearly 700 points during the session - as panicked investors dumped stocks across the board.

Bank lending remained tight as nervous institutions continued to hoard cash. Treasury prices fell, raising their corresponding yields. The dollar gained versus the euro and the yen. Oil, gas and gold prices fell.

The Dow Jones industrial average (INDU) lost 679 points, or 7.3%, closing at its lowest point since May 21, 2003. It was the Dow’s third biggest one-day point-loss ever.

The Standard & Poor’s 500 (SPX) index lost 7.6% and closed at its lowest point since April 28, 2003. The Nasdaq composite (COMP) lost 5.5% and closed at its lowest point since June 30, 2003.

A key measure of investor fear hit an all-time high: The CBOE Volatility (VIX) index, or the VIX, hit nearly 64.

Over the last seven sessions, the Dow has lost 2,271 points, or 20.1%. Since hitting an all-time high of 14,164.53 one year ago today, the Dow has lost 39.4%.

“We are in a free fall right now and fundamentals have been thrown out the window,” said Phil Orlando, chief equity market strategist at Federated Investors.

Stocks have tumbled despite a series of efforts on the part of the government to unfreeze the credit markets and get money flowing through the system again.

On Thursday, the Treasury said it was looking to buy stakes in some banks as part of the $700 billion bank bailout law enacted last week. The main focus of the bailout remains buying bad assets from banks.

The Fed and Treasury have done many things right, but the markets realize that these programs won’t have an impact on the market until six to nine months out, Orlando said.

“[Third quarter] earnings will still be poor, [third-quarter] GDP will be a disaster,” he said. “Investors are trying to price in the depth of the recession now.”

One year ago today, the S&P 500 hit an all-time high of 1565.15. As of Thursday’s close, it was down 41.9%.

The Nasdaq has never come close to its record of 5,048.62 hit on March 10, 2000, at the end of the tech bubble. But after hitting a six-year high of 2,859.12 last Halloween, the Nasdaq had slipped 42.5%, as of Thursday’s close.

Stocks had slumped throughout the year, but the selling accelerated in September following a series of bank failures and mergers.

“The Lehman bankruptcy was really the failure that triggered this waterfall event we’ve been going through,” said John Merrill, chief investment officer at Tanglewood Wealth Management.

“Suddenly people who thought they had access to money didn’t have money and they had to sell something,” he said. “So it started with forced selling and it’s turned into a panic.”

After the close of trade Thursday, Citigroup said it failed to reach a deal with Wachovia. Citi said that although it will seek damages, it won’t block a Wachovia (WB, Fortune 500)-Wells Fargo (WFC, Fortune 500) merger.

GE is due to report earnings Friday. In addition, President Bush is expected to make a statement in the morning, telling investors that economic officials are doing everything they can to stabilize our financial system.

Source: CNNMoney.com