U.S. Fears Keep World Markets Plunging

Jan. 22, 2008

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(CBS/AP) Global stock markets extended their shakeout into a second day Tuesday, plunging amid fears that a possible U.S. recession will cause a worldwide economic slowdown.

Japan's Nikkei 225 index nose-dived 5.7 percent - its biggest percentage drop in nearly 10 years - to 12,573.05, a day after falling 3.9 percent.

"Everywhere you looked in Asia today, it was a field of debris from stock markets that have crashed and burned," reported CBS News correspondent Barry Petersen in Tokyo.

The other common factor in the Asian investment world, said Petersen was the consensus that America is to blame.

"Falling markets in China, South Korea, India, and Australia are a stunning vote of 'no-confidence' that the plan (President Bush's proposed economic stimulus) will fix what ails America," said Petersen.

President Bush was to meet Tuesday with Congressional leaders for further talks on his proposed economic stimulus plan. The gloomy state of the economy was expected to draw a quick agreement between the White House and the Democrat-led legislature.

Australia's benchmark index sank 7.1 percent, its steepest slide in nearly 20 years. Hong Kong's Hang Seng index, which slumped 5.5 percent Monday, was down 8.2 percent in afternoon trading.

In China, the Shanghai Composite index lost 7.2 percent to close at its lowest level since August.

Indian Finance Minister P. Chidambaram urged investors to remain calm after trading in Mumbai was halted for an hour when the stock market there fell 10 percent within minutes of opening. In volatile afternoon trading, the Sensex was down 6.2 percent.

"There is no reason at all to allow the worries of the Western world to overwhelm us," Chidambaram said.

Investors across the region dumped shares in frenetic trading on worries that the U.S. economy, battered by a credit crisis and housing slump, will shrink in coming months, weakening demand for Asian exports.

The dramatic declines in Asia and Europe were expected to spread to Wall Street, where stock index futures were already down sharply hours before the trading day began.

CBS News correspondent Mark Phillips reported from London that the word on the tongues of European analysts and traders Tuesday, was "volatile."

"It's a roller coaster, and nobody's enjoying the ride. Everybody's waiting for Wall Street to open up, and the expectation is that will open down," said Phillips, who reported London's market alone lost $150 billion in trading value on Monday.

Markets have been plunging amid pessimism about the ability of American authorities to prevent a recession. The Federal Reserve has indicated it will lower interest rates further, and President Bush has proposed an economic stimulus package that includes $145 billion in tax cuts, but investors around the world are doubtful that the measures will lift the economy quickly.

"Unless we get some positive 'shock effects,' such as drastic measures from the U.S. government, there is almost no hope for a recovery in stocks," said Koji Takeuchi, senior economist at Mizuho Research Institute in Tokyo.

Appearing on CBS' Early Show Tuesday, Financial Times' managing U.S. editor Chrystia Freeland said the present global market turmoil was dashing hopes that powerful, rapidly developing nations - China and India in particular - could tow the world economy with them.

Last year there was hope that "there could be a slowdown in the
United States but the rest of the world would pick up the slack," said Freeland.

"What seems to be happening is people have decided that theory is not going to work for now. And the U.S. slowdown is pulling everybody else down," Freeland told The Early Show.

U.S. markets were closed Monday for a holiday commemorating civil rights leader Martin Luther King Jr. But Wall Street future prices were down sharply, portending a plunge when trading begins at 9:30 a.m. Eastern time.

Dow Jones industrial average futures were down 621 points, or 5.1 percent, to 11,485, while Standard & Poor's 500 futures were down 70 points, or 5.3 percent, at 1,255.

Noritsugu Hirakawa, who monitors stock trading at Okasan Securities Co. in Tokyo, said investors were spooked by the drastic falls on Chinese and Indian markets - the two emerging economies that are viewed as sustaining global growth even as the U.S. economy sputters.

"The end to the slides in Asian stocks is nowhere in sight," he said. "There is even speculation that China may be exposed to the U.S. subprime mortgage crisis."

In Europe on Monday, investors also dumped stocks, sending the Britain's benchmark FTSE-100 down 5.5 percent and France's CAC-40 Index sliding 6.8 percent. Germany's blue-chip DAX 30 plunged 7.2 percent to 6,790.19.

That sell-off continued Tuesday throughout Asia, with benchmark indices in South Korea, Taiwan, Singapore and the Philippines all falling more than 4 percent. Indonesia's market sank 8.5 percent.

Asian markets have been in a downward spiral for most of January. Since the start of the year, Japan's Nikkei index has tumbled nearly 18 percent, while the Hang Seng is down a stunning 21 percent.

Even the usually upbeat Japanese Economy Minister Hiroko Ota acknowledged that threats were growing.
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