A Bleak Mood At Bear Stearns

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Bush: Economy Is in 'Challenging Times'

President Bush, trying to ease turmoil in financial markets, said Monday that his administration is 'on top of the situation' in dealing with the slumping economy.

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"I'm just pessimistic," said John Hatfield, 28, who trades mutual funds. "I think there is a lot of uncertainty for everybody."

Some analysts were breathing slightly easier Monday because a wholesale stock sell-off was averted, at least for now. U.S. investors were appeased by the Federal Reserve's weekend moves to avert an all-out financial crisis, including lowering by a quarter-point the rate it charges to lend directly to banks and setting up a lending option for firms to secure short-term loans with a broad range of collateral.

"When you walked in this morning . . . you were thinking 'My God, this is going to be a terrible day,' " said Robert Pavlik, chief investment officer of Oaktree Asset Management. "So if you can close out this day with having relatively minor losses, or relatively flat trading, you could take it as some sort of moral victory."

Some U.S. investors viewed the collapse of Bear Stearns as a necessary step in cleansing a Wall Street plagued by years of risky bets made on the nation's housing market.

"Until there is blood in the streets, the markets really can't begin to recover on a more systematic basis," said Randy Bateman, chief investment officer for Huntington Asset Advisors. "This Bear Stearns situation may be that catharsis."

Still, the turmoil in the U.S. financial markets was having severe reverberations overseas, where Asian markets dropped significantly Monday and European markets lost ground.

Japan's Nikkei index shed about 3.7 percent of its value, Hong Kong's Hang Seng index was off by 5.2 percent, and the Sensex in India fell 5.1 percent on Monday. The Shanghai composite, the main index of Chinese stocks, dropped 3.6 percent.

In early trading Tuesday, the Nikkei was up 0.2 percent, the Hang Seng fell 2.1 percent and the Shanghai composite was down 1.8 percent.

In Europe on Monday, London's FTSE 100 index was down nearly 3.9 percent, and the main exchanges in France and Germany were off 3.5 percent and 4.2 percent respectively.

Other signs of a mounting financial crisis emerged. The prices of oil and gold in Asia soared to new highs, while the dollar weakened to new lows against Asian currencies. At one point on Monday, the dollar was trading at 95.76 Japanese yen -- a low that hadn't been seen since 1995. The dollar also dropped to a new low against the Chinese yuan, 7.0815.

"All these factors will worsen an already declining American economy," said Huang Shaoming, a senior economics researcher at the Bank of China in Hong Kong.

At China's Citic Securities, executives announced they wanted a "technical adjustment" to their planned $1 billion investment in Bear Stearns, given the developing crisis at the company. Details were not immediately available.

Some of the few spots in the world that weren't immediately affected by the crisis were East African stock exchanges, which are not integrated into U.S. or European markets.

"If you look at our markets, no stock is listed in Europe or the U.S.," said Isaac Njuguna, head of investments for Zimele Asset Management Company in Nairobi. "That means we are more or less insulated. But that's not to say the effect will not come in a different way at a different time."

Down the road, he said, countries like Kenya, which exports coffee and tea to the U.S. and European markets, could take a hit from weakened world economies. The Nairobi exchange is also bracing for the possibility that foreign investment, which has buoyed the exchange in recent years, could dry up.

Lazo reported from Washington. Staff writer Robin Shulman in New York and correspondents Ariana Cha in Shanghai, Blaine Harden in Tokyo and Stephanie McCrummen in Nairobi contributed to this report.