PANIC selling sent Asian markets plummeting yesterday and forced central banks from Frankfurt to Sydney to pump billions of dollars into money markets to head off a credit squeeze.
The dominoes started falling on Thursday when European bourses plunged. Wall Street then played its hand, crashing 387 points, its second biggest one-day plunge this year.
And last night, the fallout continued for a second day, with London's FTSE-100 Index and Paris's CAC-40 Index both falling about 5 per cent the past two days.
South Korea was the worst performer in Asia. Its Kospi Index fell 4.2 per cent, while Japan's Nikkei-225 Index dropped 2.37 per cent. Hong Kong's Hang Seng Index was down 2.88 per cent after a typhoon warning forced the market to close an hour early.
Singapore looked to be following regional bourses deep into the red early on, but the Straits Times Index (STI) rallied in the last two hours of trading to close down just 53.99 points at 3,359.18, after dropping 115 points at one stage.
Central banks responded to the air of panic by injecting extra cash in a bid to calm nerves and stabilise banking systems which have become so risk averse, international banks have virtually stopped lending.
The European Central Bank (ECB) pumped in a further 61 billion euros (S$127 billion) to follow its 95 billion euros injection on Thursday. The US Fed followed with a US$24 billion (S$37 billion) infusion on Thursday, and another US$19 billion yesterday. The Bank of Japan injected 1 trillion yen (S$13 billion).
The STI's surprising let-off looked more like a miracle with every passing hour as the casualties mounted - and fears took hold that the woes in the United States mortgage market had become everyone's nightmare.
'This is no longer a US crisis any more. I told my clients to cash out their shares and park the money in government bonds,' said the marketing head of one European private bank based here.
Other were more optimistic, maintaining that the fallout would be confined to the financial markets.
CIMB-GK research head Song Seng Wun said: 'This is really a crisis of confidence. It is still too early to tell whether this crisis now unfolding in the financial markets will spread to the real economy.'
Investors have been caught out by the speed with which the contagion has spread through financial markets.
It started as a problem in the credit markets two weeks ago, with international banks failing to offload debts related to big business deals.
But that has snowballed into a global crisis engulfing equities, currencies and commodity markets.
The spark for this latest selldown came on Thursday when France's largest-listed bank, BNP Paribas, suspended three hedge funds with exposure to US mortgages.
Wall Street and European bourses crashed, prompting the ECB intervention.
Unsurprisingly, financial stocks were among the worst hit. Singapore's DBS Group Holdings was down 2.8 per cent, giant Australian merchant bank Macquarie fell 7 per cent, while Tokyo-listed investment bank Nomura dropped 4.8 per cent.
Commodities futures on base metals and gold also fell sharply due to a growing global aversion to risk.
While financial markets are clearly under stress, analysts stressed that there are still few signs that central bankers see any significant fallout from what has happened.
Morgan Stanley analyst Gerard Minack noted that 'the growth momentum (among companies) seems high outside the US'.
'My view remains that there will be one more rally in equities and that, while difficult to pick the trough in the current turmoil, there will be a buying opportunity.'
Credit fears rattle Asia
Asian stock markets tumbled on Friday as worries about spreading US subprime mortgage woes sparked selling.
Asian central banks also weighed in to calm jittery money markets.
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