Asian markets plunge after US bail-out rejection

The carnage on Wall Street spread to Asia today, with stocks plunging after US politicians rejected a €487bn bank rescue plan aimed at stabilising the nation’s financial system.

All major stock markets in the region tumbled sharply across the board, succumbing to heightened fears of a broader global financial crisis.

Japan’s benchmark Nikkei 225 index nosedived more than 544 points, or 4.6%, to 11,199.07, with popular stocks like Sony down 6.8%, and Toyota down 4.6%.

In Hong Kong, the Hang Seng index sank 3.6%. Markets in Australia, South Korea and the Philippines were also down sharply.

Japanese prime minister Taro Aso urged the country’s financial officials to monitor the situation closely and take appropriate measures to protect the world’s No 2 economy, according to Kyodo News agency.

“We have to respond appropriately in order not to affect the Japanese economy and to prevent the financial system from falling apart,” Mr Aso was quoted as saying.

Japan’s banks have relatively little exposure to the bad mortgages at the core of the global credit crisis, but Japanese investors are worried that a slowdown in the US and global economy will hurt demand for exports.

Investors were stunned by the US House of Representatives’ rejection last night of a $700bn (€487bn) emergency bail-out package that would have allowed the government to buy bad mortgages and other sour assets held by troubled banks and other financial institutions.

But with elections in November, many politicians were unwilling to take the risk of supporting a measure that many American voters see as an undeserved bail-out for rich, reckless investment bankers.

The Dow Jones industrial average plunged 777 points, its biggest ever single-day drop, or nearly 7%, to 10,365.45, its lowest close in nearly three years.

“This is a bad development,” Australian prime minister Kevin Rudd said in the capital Canberra. He urged US politicians to urgently return to negotiations to come up with a deal that would prevent further infection of world markets.

Mr Rudd said Australia’s banking system was better regulated than the US system and better prepared for financial shocks, but that the failure was another worrying sign in already tough times.

“The attitude that we will adopt, and I believe other friends and allies of the US will adopt, is to urge the US Congress to pass this or a similar measure when it is re-presented to the Congress later this week,” he said.

Australia’s benchmark S&P/ASX-200 index fell more than 5.3% within half an hour of the opening, but trimmed some losses as trading progressed. By afternoon trading, it was down 3.7%.

The key index in Taiwan’s stock market, closed yesterday for a typhoon, fell as much as 6.1%, even though vice premier Paul Chiu urged investors to have confidence in the island’s export-driven economy and its financial markets.

The chaos sapped the dollar overnight. The greenback was trading at 104.14 yen in Asia today from above 106 yen a day earlier, adding further pressure on major exporters.