Traders on the floor of the Philippines Stock Exchange look on as stocks sank amidst worries over fresh US credit jitters. -- PHOTO: REUTERS
Singapore share prices closed 1.64 per cent lower on Friday as investors rushed for the exit amid fears the US subprime mortgage crisis is spreading, dealers said.
The Straits Times Index fell 53.99 points to 3,359.18.
The benchmark index had plunged by more than 100 points earlier in the day before regaining its balance. The central bank said it was ready, if needed, to intervene to stabilise the financial market.
Analysts say concerns over the US subprime mortgage market overshadowed local news the economy had grown a better-than-expected 8.6 percent in the second quarter, prompting the government to raise the full year growth target to 7.0 to 8.0 per cent from 5.0 to 7.0 per cent.
'Its all an issue of confidence now,' said CIMB-GK research head Song Seng Wun said.
'Yes, the economy did well in the second quarter but that's in the past. This current volatility in the financial markets could potentially impact gross domestic product in the final quarter.'
'But having said that, the good thing is fundamentals remain strong, and our financial institutions are in a much healthier state than any time before.'
Banks led losses, with DBS Group down 4.6 per cent, United Overseas Bank fell 3.3 per cent and Oversea-Chinese Banking Corp slipped 4 per cent.
US subprime concerns
US shares plummeted on Thursday amid fresh credit fears linked to the troubled subprime US mortgage sector.
The Dow Jones Industrial Average plunged 387.18 points or 2.83 per cent to close at 13,270.68.
The tech-heavy Nasdaq composite fell 56.49 points or 2.16 per cent to 2,556.49 and the broad-market Standard & Poor's 500 index tumbled 44.38 points or 2.96 per cent to 1,453.11.
Investors were spooked by the signs from abroad that the crisis in the US subprime loan sector, which provides mortgages to people with poor credit histories, is spreading to the global financial sector.
European jitters
Adding to the jitters was an announcement by French bank BNP Paribas that it had suspended three funds exposed to the US subprime sector because it could not value them fairly, due to a 'complete evaporation of liquidity in certain segments of the US securitisation market.'
Other Asian stocks also slumped broadly.
KUALA LUMPUR - At closing time on Friday, there were 104 gainers 835 losers and 160 counters traded unchanged on the Malaysian stock market.
The KLCI was at 1,287.70 down 25.69 points, the Second Board Index was at 107.49, down 1.79 points and the FBMEmas was at 8,726.83, down 172.54 points.
Turnover was at 1.059 billion shares valued at RM1.953 billion (S$0.85 nillion)
HONG KONG - Hong Kong share prices closed sharply lower on Friday, down 2.88 per cent, as fears of a global credit crisis from US subprime mortgage problems dominated trading throughout the day, dealers said.
They said the injection of liquidity by the US Federal Reserve the European, Japanese and Australian central banks into financial markets to ease credit concerns did not reassure investors.
Instead, the move was interpreted as an admission of the gravity of the problem.
The Hang Seng index closed down 646.65 points at 21,792.71, off a low of 21,661.05 and a high of 21,860.13.
For the week, the index was down 745.73 points or 3.31 per cent. Turnover was HK$65.46 billion (S$12.66 billion).
Trade on the local bourse was suspended at 2.45pm Singapore time due to a typhoon warning.
TOKYO - Tokyo stocks fell more than 2 per cent to its lowest close in almost 5 months on Friday as fears about spreading US subprime mortgage woes sparked selling of financial stocks and prompted investors to take profits in banks, shippers and other recent gainers.
Selling spread across the board, but some bucked the bearish trend. Fast Retailing Co Ltd jumped more than 3 per cent after Nomura Securities said the firm's decision to withdraw from its bid for Barneys New York was favourable.
'Japanese stocks are being sold in sympathy with falls in US and European stocks,' said Nagayuki Yamagishi, a strategist at Mitsubishi UFJ Securities Co Ltd.
'What we are seeing is unwinding of carry trades, and as a result, commodity, oil and stocks are being sold. The only financial instrument that is being bought is bonds,' he added.
The Nikkei shed 406.51 points or 2.37 per cent to 16,764.09 while the Topix index declined 2.96 per cent to 1,633.93 after a brief 3 per cent tumble. -- REUTERS, ST
Central banks move to calm panicky money markets
TOKYO - MAJOR central banks swept in to calm credit markets spooked by mounting losses.
Japan's central bank injected one trillion yen (S$12.9 billion) into the money markets on Friday to try to ease a sharp liquidity squeeze caused by problems in the US subprime mortgage sector.
The injection followed the European Central Bank's move on Thursday to pump a record 94.8 billion euros (S$198.1 billion) into the eurozone banking market as lenders struggled for funds in a flight to safety from the growing defaults in the US home loans market.
The US Federal Reserve made a more modest US$24 billion available to US commercial banks on Thursday.
Central banks in Malaysia, Indonesia and the Philippines also intervened to sell US dollars on Friday, traders said, as their currencies succumbed to selling of risky assets as worries about the credit markets escalated.
'I heard they sold dollars at 45.75 and I am still seeing offers at that level,' said a trader in Manila, referring to intervention in the Philippine peso .
The peso fell nearly a per cent from Thursday's close before being supported at the day's low of 45.75.
The ringgit fell to an end-June low of 3.48 per dollar before suspected central bank intervention, and the high-yielding rupiah hit its lowest in a year.
'They did intervene around the 3.4780/90 levels,' said Suresh Ramanathan, a strategist at CIMB Bank in Kuala Lumpur.
Meanwhile, a senior Bank of Korea official said the central bank would not supply dollars to ease what it regarded as a lack of short-term supplies in the market.
Singapore's central bank said it stood ready to supply funds to the market if needed.
'Better to offer ample funds':BoJ
The BoJ's injection is up from 400 billion yen the bank pumped into the financial system on Thursday and the highest since it offered one trillion yen on June 29.
A BoJ spokesman said the central bank had 'judged it would be better to offer (ample) funds.' 'They needed to stabilise money market interest rates,' said Hiromichi Shirakawa, chief economist at Credit Suisse in Tokyo.
'This increase in interest rates globally is reflecting the increasing credit risk of some financial institutions,' he said.
The main concern is that if the banks and investment houses become increasingly reluctant to provide funds, the broader economy as a whole will slow since businesses will not be able to finance their operations.
If that happens, there could be a destructive knock-on effect as spending and employment fall, running the risk in a worst case scenario of a recession, where growth turns negative.
Normally, central banks would then cut interest rates but if lenders remain worried about possible exposure to US home loan securities that could be worthless, then they will only want to lend at higher rates.
Not monetary loosening
Mr Shirakawa, a former BoJ official, said the BoJ's move should not be confused with a monetary loosening to support economic growth.
'It's not yet a support to the real economy. The decision is to reduce concern in the market in terms of liquidity drying up,' he said.
A plunge in global share prices spilled over into Asia on Friday as worries grew that problems in the US sub-prime mortgage sector for risky borrowers are spreading beyond the US property market.
US banks have suffered a sharp rise from defaults on high-risk mortgages and it is feared that losses by other banks and investment funds that are exposed to the US housing market could cause broader financial problems.
Pre-emptive ECB move
Kenichi Yumoto, vice president at the forex sales department of Societe Generale in Tokyo, said he believed 'the ECB acted to stem risks pre-emptively.
'The move, with a record amount, however, may have fanned a market sentiment that they are heading to a crisis,' Mr Yumoto added.
But the move by the Bank of Japan is 'appreciated", he said, arguing the decision to follow the lead of the ECB gave investors a sense of policy consistency.
US President George W Bush also sought to calm fears that a credit squeeze would shake economic growth, telling a news conference both the global and US economy were strong.
'I'm told there is enough liquidity in the system to enable markets to correct,' Mr Bush said. -- AFP, REUTERS
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