Asian markets remain jittery despite slight recovery at close; Europe volatile

August 9, 2011

A frenzied sell-off caused Asian stocks to nosedive Tuesday, and though most major indexes recovered slightly toward the close of trading, the latest day of losses extended fears of a global economic downturn.

Japan’s Nikkei 225 index fell more than 4 percent within the opening hour and dropped 1.68 percent for the day, closing at 8,944.48 — its first finish below the 9,000 mark since mid-March. South Korea’s Kospi index sustained massive losses in the opening hours, at one point plunging more than 9 percent and bringing a brief halt to trading. But the index clawed back and finished with losses of 3.64 percent for the day.

European markets fluctuated in morning trading, falling sharply at first but then largely recovering. By midday, the major indexes were all within one or two percentage points of where they had opened Tuesday morning — with London’s FTSE and Germany’s DAX slightly in the red, but France’s CAC 40 and the Stoxx Europe 600 edging into positive territory.

U.S. stock futures were also volatile but edged up significantly within two hours of the opening bell.

The latest Asian market chaos heightened the urgency facing the United States, which on Tuesday will hold a Federal Reserve meeting to discuss possible new monetary easing measures. In the meantime, Asia is offering proof that no part of the world is cut off from the problems gripping the U.S. and Europe, particularly as foreign investors pull their money from Asia’s stocks and flee to safe havens, such as Treasurys and gold.

“If this was only the expectation of a global economic slowdown, the markets shouldn’t be this panicked,” said Hiromichi Shirakawa, the chief economist for Japan at Credit Suisse. “But markets predict the future, and it’s almost like the markets are predicting something really bad happening in the global financial situation,” beyond what has already happened.

The latest market volatility comes in the wake of Wall Street’s worst trading day since the 2008 financial crisis — a reaction to the Friday credit rating downgrade from the ratings agency Standard & Poor’s.

For many of Asian’s export-dependent countries, though, losses have been more sustained. In the last five days of trading, the Kospi has lost more than 15 percent. The Nikkei has plummeted 9.14 percent.

On Tuesday, financial officials in Seoul asked for calm, saying that the market losses wouldn’t cause major pain to the economy at large.

“We will draw up necessary market-stabilizing steps after monitoring financial market situations,” Korea’s Financial Services Commission said in a statement.

Japan’s finance minister, Yoshihiko Noda, said he would closely watch the markets “with a sense of alarm.” Noda has been pegged by political analysts, and by supporters within his own ruling party, as a likely successor to current Prime Minister Naoto Kan. But the recent market turmoil has complicated his ambitions: Local press reported Tuesday that Noda would soon resign to pursue the presidency of the Democratic Party of Japan — a doorway to the prime minister’s job. But Noda said he has no plans to immediately announce his resignation.

“I want to fulfill my mission [as finance minister], with conditions as they are now,” Noda told reporters.

Noda and other financial authorities have tried in recent days to hold back the dogged appreciation of the yen, which investors view as a safe haven currency, along with the Swiss franc. Japan’s finance ministry intervened in the foreign currency market last Thursday, weakening the yen by as much as 4.1 percent against the dollar. But the yen has already re-gathered most of the strength it lost.

Late Tuesday in Tokyo the yen was valued at 77.30 against the dollar, up from its post-intervention lowpoint of 80.17 against the dollar last Thursday.

Correspondent Anthony Faiola in London and staff writer Debbi Wilgoren in Washington contributed to this report.

Chico Harlan covers personal economics as part of The Post's financial team.
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