Global Markets Plunge on Lehman, Merrill Woes

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Asian stock markets tumbled Tuesday as the collapse of Lehman Brothers and takeover of Merrill Lynch spurred fears of a global financial crisis. European markets, which fell sharply Monday, extended losses in early trading.

Japan's benchmark Nikkei 225 index sank nearly 5 percent to 11,609.72 — its lowest close since July 2005. Hong Kong's blue-chip Hang Seng Index shed 5.4 percent. Both markets — Asia's two biggest — had been closed for holidays on Monday, when news first broke about the turmoil on Wall Street that has dramatically changed its landscape.

Across Asia, markets were all deep in the red. South Korea's main index declined 6.1 percent, while Taiwan's benchmark was off 4.9 percent and China's Shanghai index sank 4.6 percent.To ensure liquidity, Japan's central bank on Tuesday injected of 2.5 trillion yen, or $24 billion, into money markets and issued a statement vowing to take measures to maintain stability in the country's financial markets. Cabinet ministers, along with the central bank chief, were also holding an emergency meeting.

"The Bank of Japan will carefully monitor recent situations surrounding the U.S. financial institutions and their influences, and will continue to strive to ensure smooth settlement of funds and maintain stability in financial markets through measures such as appropriate money market operations," Gov. Masaaki Shirakawa said.

The dollar also took a hit, falling to 103.83 yen Tuesday afternoon in Asia from mid-107 yen levels before the weekend.

In Europe, Britain's FTSE 100 was down 1.5 percent and France's CAC-40 slid 1.4 percent. Both markets had fallen sharply Monday.

The Japanese unit of Lehman Brothers Holdings Inc. requested bankruptcy protection at a Tokyo court after the 158-year-old firm filed for Chapter 11 bankruptcy in New York on Monday.

The storied New York investment bank, crippled by $60 billion in soured real-estate holdings, was unable to find an investment partner to throw it a lifeline despite a flurry of last-minute negotiations over the weekend.

Investors were further shaken up by equally stunning news that Merrill Lynch, one of the world's most famous brokerages, sought to avoid a similar fate with a $50 billion transaction to become part of Bank of America Corp.

The crisis appeared to be far from over. American Insurance Group, the world's largest insurer, was fighting for its survival after downgrades from major credit rating firms, adding pressure as AIG seeks billions of dollars to strengthen its balance sheet.

On Wall Street Monday, the Dow Jones industrial average fell more than 500 points, or 4.4 percent, to 10,917.51 — its worst point drop since after the September 11, 2001, terror attacks.
U.S. stock futures were down modestly, suggesting Wall Street could fall further Tuesday. Dow futures were down 38 points to 10,921.

Seichi Miura, strategist at Mitsubishi UFJ Securities in Tokyo, said already weak investor sentiment has been badly shaken by Lehman. He predicted extremely volatile markets ahead.

"The market just hasn't been able to shake off an overall downward trend," he said.

The Tokyo Stock Exchange halted securities and derivatives trading by Lehman Brothers a day after Japan's financial watchdog ordered its local unit to suspend operations.

South Korea's financial regulator also said it had suspended some operations of two local units of Lehman Brothers.

Share prices in Tokyo fell across the board, with banking issues taking a particularly hard hit in the wake of Lehman's collapse. Investors unloaded shares in major Japanese banks listed as some of the biggest lenders, including Aozora Bank, Mizuho Financial Group and Shinsei Bank.

Aozora, a midsize Tokyo-based bank, lost more than 19 percent, even as the company in a statement sought to reassure markets that its net exposure could be reduced to less than $25 million compared with the widely reported figure of $463 million.

Mizuho Financial Group, Inc., with a $289 million loan to Lehman, fell more than 10 percent. Shinsei was down almost 16 percent.

Australia's banks, including Commonwealth Bank of Australia, ANZ Banking Group and National Australia Bank Ltd., were all hit hard.

In Seoul, South Korean banks extended losses. Top lender Kookmin Bank shares declined 8 percent. Hana Financial Group shares fell 10 percent.

In Hong Kong, HSBC lost 4.4 percent, and leading Chinese lender ICBC plummeted 7.7 percent.
Hong Kong government officials said they were keeping a close eye on the markets.

"We know Hong Kong has a good monitoring system in place. I believe all monitoring agencies will make sure trading is conducted smoothly today," said Chan Ka-keung, secretary for financial services and treasury.