Huffpost Business

Asia Markets Tumble on US Worries

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TOKYO — Global stock markets extended their shakeout into a second day Tuesday, plunging amid worries that a possible U.S. recession will cause a worldwide economic slowdown. The dramatic declines were expected to spread to Wall Street, where stock index futures were already down sharply hours before the trading day began.

Japan's Nikkei 225 index, the benchmark for Asia's biggest bourse, skidded 4.4 percent in morning trading to 12,738.31 points, after dropping 3.9 percent Monday. Hong Kong's Hang Seng index was down 5.2 percent after plunging 5.5 percent the day before.

"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.

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 436 points, or 3.6 percent, at 11,670, while Standard & Poor's 500 futures were down 57.1 points, or 4.3 percent, at 1,268.

Markets have been plunging amid pessimism about the ability of the U.S. government 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.

The U.S. economy has been battered by a slump in the housing market and a credit crisis that has led to billions of dollars of losses among major U.S. banks.

In Europe 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.

Takeuchi said investors feel that the selloff is spreading worldwide, setting off fears of a global downturn. Risks of economic contraction have been growing in Japan as both exports and consumer spending are weakening, he said.

Kirby Daley, strategist at Newedge Group, said the Nikkei could shed another 10 percent to 15 percent to the 11,000 level in the next few months. Japanese companies depend on exports and capital investments to keep up profits, and both are endangered if there is a U.S. slowdown, he said.

"The argument that valuations are cheap for Japanese stocks is flawed," Daley said. "The basis for those earnings valuations doesn't consider ongoing problems in the U.S. economy, which are likely to get worse."

Even usually upbeat Japanese Economy Minister Hiroko Ota acknowledged that downsides risks are growing, given the volatile markets and surging oil prices.

"The economy keeps recovering as recent production data show, but downside risks are growing these days," Ota told reporters.