Japan's stocks slumped, sending the Nikkei 225 Stock Average to its
lowest close in almost five years, as the seizure in credit markets
curbed demand for the nation's exports and threatened to worsen the
economic slowdown.
Sharp Corp., Japan's biggest maker of
liquid-crystal displays, dived 9.3 percent after cutting its earnings
forecast. Toyota Motor Corp. tumbled 4.9 percent, giving up its spot as
the largest automaker by market value to Volkswagen AG. Mitsui O.S.K.
Lines Ltd., the nation's second-biggest shipping company, fell 5.1
percent on concern demand will wane.
The Nikkei Average fell
317.19, or 3 percent, to close at 10,155.90 in Tokyo after dipping
below 10,000 for the first time since Dec. 10, 2003. The broader Topix
index dropped 21.44, or 2.2 percent, to 977.61. More than four stocks
retreated for each that gained on the gauge.
The Topix has plunged
22 percent since September as credit turmoil caused the failures of
banks globally and slumping commodities dragged down raw-materials
producers. Seventy percent of stocks on the Topix sank below their book
values as of yesterday, while shares on Tokyo Stock Exchange's main
board traded at an average 12.7 times earnings, the lowest since
Bloomberg started gathering data in July 1989.
Shares pared
declines and the yen fell from a three-year high against the euro after
Australia cut interest rates by more than expected, spurring
speculation more central banks will lower borrowing costs to protect
their economies from the credit crunch.
The Reserve Bank of
Australia lowered its overnight cash rate target to 6 percent from 7
percent, double the reduction forecast by economists. The Bank of Japan
today kept interest rates unchanged at 0.5 percent.
Sharp
retreated 9.3 percent, the most since March 2000, to 910 yen. The
Osaka-based company yesterday cut its annual net income forecast by 43
percent, citing lower sales of phones and falling prices for displays.
Toyota
dropped 4.9 percent to 3,710 yen, the lowest since March 2004.
Mitsubishi Motors Corp., which exports three-quarters of its Japanese
production, lost 10 percent to 131 yen. Mazda Motor Corp., which
derives more than half its profit from Europe, dived 5.9 percent to 320
yen.
Auto sales fell 27 percent in the U.S. last month as
tightening credit and an economic slowdown discouraged buyers,
prompting Toyota to offer no-interest loans. In Europe, sales slid 16
percent in August, the biggest monthly drop in nine years.
European
stocks fell, sending the Dow Jones Stoxx 600 Index to a four-year low,
as concern that banks need more capital overshadowed the Federal
Reserve's plan to unlock credit markets by purchasing short-term
corporate loans.
Royal Bank of Scotland Group Plc tumbled 39
percent on speculation it will be the next U.K. lender to need
government assistance. Barclays Plc lost 9.2 percent. SAP AG declined
7.3 percent after brokerages cut share-price estimates for the world's
largest maker of business-management software.
The London
interbank offered rate, or Libor, that banks charge each other for
borrowing in dollars overnight climbed 157 basis points to 3.94
percent, the British Bankers' Association said today.
National
indexes fell in 15 of the 18 western European markets. Germany's DAX
slipped 1.1 percent. The U.K.'s FTSE 100 advanced 0.4 percent, while
France's CAC 40 gained 0.6 percent.
RBS dropped 39 percent to 90
pence, while Barclays declined 9.2 percent to 285 pence. The Europe
Stoxx Banks Index lost 4 percent, the biggest retreat among the 18
groups in the Stoxx 600.
The U.K. government may invest at least
45 billion pounds ($79 billion) in banks including RBS and Barclays to
bolster capital depleted by mortgage-related losses, three people with
knowledge of the situation said.
Chancellor of the Exchequer
Alistair Darling and Bank of England Governor Mervyn King met with
banking chief executive officers from RBS's Fred Goodwin to Barclays's
John Varley late yesterday to discuss the investment, said the people,
who declined to be identified because the meeting was confidential.
RBS and Barclays said in separate statements that they didn't request capital from the government.
Separately,
Standard & Poor's cut RBS's credit rating for the first time in 10
years, saying the bank is ``less well positioned than some of its major
global peers'' as it seeks capital.
BP Plc and Anglo American Plc led commodity producers higher as oil and metals prices advanced.
BP,
Europe's second-largest oil company, gained 4.1 percent to 447.25
pence. Total SA, the region's third-biggest, increased 3 percent to
40.015 euros. Anglo American, the world's fourth- largest diversified
mining company, climbed 3 percent to 1,556 pence.
Tuesday marked another ugly session for stock investors as a weak
outlook from Bank of America (BAC 23.77, -8.45) and cautious comments
from Fed Chairman Ben Bernanke overshadowed a Federal Reserve plan to
improve liquidity in short-term corporate borrowing.
Stocks rose
1.5% at the open on the Fed's plan to shore up short-term corporate
borrowing, but overall economic concerns quickly sank stocks. In the
end, the S&P 500 plunged 5.7%, settling at its worst levels, to a
new five-year low in broad-based weakness. All ten economic sectors
posted a loss, with notable declines in financials (-11.5%), tech
(-6.1%) and consumer discretionary (-5.7%).
Fed Chairman Bernanke
gave the market little to cheer about in a speech at the National
Association for Business Economics annual meeting. He said that
economic activity is likely to be subdued through this year and into
2009 and increases in financial market turmoil may extend the period of
weak economic performance.
He did leave the door open for a FOMC
rate cut on Oct. 29, although fed funds futures had already priced in a
cut of at least 50 basis points.
Bank of America, the second largest
U.S. financial firm by market cap after JPMorgan Chase (JPM 39.86,
-4.14), fell 26% after preannouncing disappointing third quarter
earnings and giving a dour outlook regarding the state of the economy.
In an attempt to shore up capital in the face of current economic
conditions, BofA is cutting its quarterly dividend by 50% to $0.32 and
plans to raise $10 billion in a common stock offering.
CNBC reported
the common stock offering was seeing weak demand, with an expected
pricing of less than $25 per share. The notion that BofA would have to
sell stock at a more than 22% discount added to overall investor
unease, especially in the financial sector.
The commercial paper
market, which many U.S. companies rely on for short-term borrowing, has
been under pressure as investors flocked to the safety of Treasuries
and away from money market funds. As a result, many companies found it
difficult to issue commercial paper, or had to pay a high cost.
In
an attempt to bring down the cost of commercial paper costs and improve
liquidity, the Fed announced this morning that it created a Commercial
Paper Funding Facility, which will provide a liquidity backstop for the
strained commercial paper market. The Fed will purchase three-month
unsecured and asset-backed commercial paper from eligible issuers. The
Fed said it has no limit to how much commercial paper it can buy.
Separately,
commodities (+1.0%) staged a modest recovery effort from Monday's 5.0%
drop, aided by a 0.8% decline in the dollar. Crude prices rose 2.3% to
$89.80 per barrel.
The S&P 500's loss marked its fifth
consecutive decline -- its longest losing streak since January. The
index has fallen 14.5% over the past five sessions and is down 32.2%
this year.