Markets in Europe and Asia tumble on continued fears of Greek debt

By Dina ElBoghdady and Blaine Harden
Washington Post Staff Writers
Friday, May 7, 2010; 6:06 PM

Stocks in Europe and Asia tumbled in another global sell-off on Friday, as investors remained rattled by Wall Street's nosedive the day before and concerned that the Greek debt crisis would spread to other European economies.

In London, Europe's financial capital, stocks slumped for the fifth-straight trading day, leaving the benchmark FTSE 100 index down 2.6 percent for the day and 8.8 percent since last Thursday. In Germany, the Dax was down 3.3 percent for the day and nearly 7 percent since last Thursday.

Those declines followed sharp losses in Asia, where stocks in Japan fell 3.1 percent, hitting a two-month low. China's Shanghai composite index slid to an eight-month low on Friday and lost 6.4 percent for the week.

"Risk aversion looks like it was taken back to early 2009 levels with practically every risk market sold off overnight," Ken Hanton, an analyst at the National Australia Bank, wrote in a Friday note to clients.

To soothe nerves, the Bank of Japan injected about $22 billion into banks and other financial institutions. It was the first such emergency move since Dec. 2, and it helped lift the Nikkei off its morning lows, while restoring some calm to currency markets. A freakish overnight jump in the value of the yen against the euro and the dollar had partially ebbed away by Friday afternoon.

Markets in Asia also seemed to find some reassurance in an announcement that finance ministers from the Group of Seven industrialized countries would hold a conference call later on Friday to address the debt troubles of Greece and other European countries.

Several of Japan's top leaders voiced deep concern Friday about the market turmoil, but Finance Minister Naoto Kan said it was unlikely that the G-7 would intervene in currency markets.

From Australia to China to Japan, economic growth and consumer confidence have been soaring in recent months. In response, central banks across the region have either begun to raise interest rates as a hedge against inflation or had considered doing so.

But carnage in the markets this week -- and a possible drop in export demand -- may force the Philippines, Malaysia and other countries to keep rates low, according to several analysts.

Fallout from the Greek debt crisis also seemed likely to nix any plans that China may have had to raise the value of its currency against the dollar. China has come under pressure from the United States to adjust the value of the yuan, which is widely considered to be undervalued.

In remarks to reporters at the White House, Obama said he spoke Friday morning with German Chancellor Angela Merkel about economic and financial developments in Europe.

"We agreed on the importance of a strong policy response by the affected countries and a strong financial response from the international community," he said. "I made clear that the United States supports these efforts and will continue to cooperate with European authorities and the IMF during this critical period."

The declines in overseas markets spread Friday to the United States, where investors remained rattled by Thursday's freakish plunge in U.S. markets. the Dow Jones industrial average recorded its fourth-straight day of steep losses, slipping as much as 2.7 percent in morning trading before paring some of those losses and closing at a 1.3 percent loss.

In a briefing Friday, President Obama said regulators were evaluating the circumstances behind Thursday's wild swing and would take appropriate action based on their findings.

"The regulatory authorities are evaluating this closely, with a concern for protecting investors and preventing this from happening again," Obama said.

Harden reported from Tokyo.

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