By Blaine Harden
Washington Post Foreign Service
Tuesday, October 7, 2008 9:50 AM
SEOUL, Sept. 7 -- Downward pressure on stocks in Asia eased slightly Tuesday, as Australia's central bank imposed the largest interest-rate cut in 16 years and Japan's new prime minister promised to prop up his country's shrinking economy with sharply higher government spending.
Comparing the world's financial plight to the 1929 Great Depression, Prime Minister Taro Aso, who has been in office less than two weeks, told a parliamentary committee that "we are now in an unprecedented, extremely difficult situation."
For the first time in nearly five years, Japan's Nikkei stock average dipped below the psychologically important 10,000 level before pairing losses. It closed down 3.03 percent, following a 4 percent loss Monday. Stocks in Hong Kong were down 4.97 percent.
In response, the government announced that companies should limit the purchase of foreign goods to halt the further decline of the won, which this year has been the world's worst-performing major currency. The won has lost more than a quarter of its value against the dollar, and credit ratings for the country's four largest banks have been cut.
Across Asia, however, markets welcomed Australia's decision to cut its benchmark interest rate by 1 percent. The cut seemed to lift investor spirits while raising hopes that similarly sizable rate cuts are on the way in Europe and the United States.
Australia's main stock index bounced up 1.72 percent, while most Asia markets cut their midday losses. Stocks in Shanghai were down 1.06 percent, and those in Singapore, Taiwan and South Korea broke about even.
In Tokyo, blue-chip exporters continued to take a pounding. Toyota was down 4.6 percent (on top of a 4 percent loss on Monday), and Sharp fell 8.8 percent.
Japanese exports have fallen steeply in recent months, and expectations of a prolonged recession in Europe and the United States have wiped out nearly a half-decade of gains in Japanese stock market values.
Aso and other senior Japanese officials said Tuesday that they planned to expand on a previously announced $100 billion economic stimulus package. Expected new spending includes public works projects, tax cuts and small business incentives.
"It is necessary to take measures to boost domestic demand," Aso said. "The government must give priority to economic and financial measures for the immediate future."