World markets slump; Nikkei at 26-year low

Updated: 2008-10-27

(China Daily) LONDON -- World stock markets slumped again Monday with the Nikkei index in Japan closing at its lowest in 26 years as the financial crisis drove up the yen, piling the pressure on the country's exporters.

A man walks past a display showing stock prices at a brokerage firm in Hong Kong Monday, Oct. 27, 2008. Asian stocks swung mostly lower in choppy trade Monday as investors braced for more volatility after last week's massive sell-off. The Hang Seng index closed the morning session down 532 points, or 4.22 percents at 12,086.38 points. [Agencies]

Tokyo's Nikkei 225 index closed down 6.4 percent to 7,162.90 - the lowest since October 1982. Hong Kong's Hang Seng Index tumbled 12.7 percent to 11,015.84, its lowest close in more than four years and biggest daily decline since 1991.

European markets followed Asia lower, with benchmarks in Britain, Germany and France trading down more than 4 percent in early trading. The FTSE 100 index was 190.31 points, or 4.9 percent, lower at 3,693.05, while Germany's DAX was down 182.81 points, or 4.3 percent, at 4,112.86. France's CAC-40 was the worst performing European index, down 184.65 points, or 5.8 percent, at 3,009.14.

"Worries about the impact of the surging yen on Japanese export earnings have hit the Nikkei hard," said Julian Jessop, chief international economist at Capital Economics.

"This in turn has led to sharp falls in European markets even when, as on Friday, the US had closed higher the day before," he added.

Dow futures were down 268 points, or 3.2 percent, at 7,994. Standard & Poor's 500 futures were down about 4 percent.

Mounting concerns about the yen and the effect of the financial crisis on currency markets prompted the world's seven leading industrial nations to issue a statement Sunday warning about the "recent excessive volatility" in the value of the Japanese currency, which is rising against the US dollar towards the 90 yen level and near 13-year highs.

"We continue to monitor markets closely, and cooperate as appropriate," the G7 said.

The statement has raised the prospect of coordinated intervention to stem the yen's appreciation.

"Although action could emerge at any time, it seems to us that it would achieve its maximum impact were it seen to be led by the US Treasury," said Simon Derrick, currency strategist at Bank of New York Mellon.

"The New York morning today may therefore provide an ideal opportunity for them to make a clear statement of intent," he added.

The euro and the pound continued to drop, with the pound 3.4 percent lower at US$1.54 and the euro down 1.8 percent down at US$1.24. The euro is under pressure from fears about banks' exposure to emerging markets and expectations the European Central Bank will cut interest rates.

As well as potentially coordinating action in the currency markets, there's growing speculation that the world's leading central banks may cut interest rates together soon to help calm markets and provide some impetus to the stalling global economy. The US Federal Reserve is already expected to cut its benchmark interest rate a half percentage point to 1 percent at a two-day meeting that ends Wednesday.