European markets follow Asian slides

World stock markets slumped again today with Japan’s Nikkei index closing at its lowest in 26 years.

It ended 6.4% down at 7,162.90 – the lowest since October 1982. Hong Kong’s Hang Seng Index tumbled 12.7% its lowest close in more than four years and biggest daily decline since 1991.

European markets followed Asia lower, with benchmarks in Britain, Germany and France trading down more than 4% in early trading.

“Worries about the impact of the surging yen on Japanese export earnings have hit the Nikkei hard,” said Julian Jessop, chief international economist at Capital Economics.

“This in turn has led to sharp falls in European markets even when, as on Friday, the US had closed higher the day before,” he added.

Mounting concerns about the yen and the effect of the financial crisis on currency markets prompted the world’s seven leading industrial nations to issue a statement yesterday warning about the “recent excessive volatility” in the value of the Japanese currency, which is rising against the US dollar towards the 90 yen level and near 13-year highs.

“We continue to monitor markets closely, and cooperate as appropriate,” the G7 said.

The statement has raised the prospect of co-ordinated intervention to stem the yen’s appreciation.

The euro and the pound continued to drop against the dollar. The euro is under pressure from fears about banks’ exposure to emerging markets and expectations the European Central Bank will cut interest rates.

“Although action could emerge at any time, it seems to us that it would achieve its maximum impact were it seen to be led by the US Treasury,” said Simon Derrick, currency strategist at Bank of New York Mellon.

“The New York morning today may therefore provide an ideal opportunity for them to make a clear statement of intent,” he added.

As well as potentially co-ordinating action in the currency markets, there is growing speculation that the world’s leading central banks may cut interest rates together soon to help calm markets and provide some impetus to the stalling global economy.

Economic data this week is likely to further stoke concerns about the global economy.

The sharp stock market declines came amid another round of government measures to boost markets. In South Korea, the central bank slashed its key interest rate Monday by three-quarters of a per cent – its biggest cut ever – to prevent Asia’s fourth-largest economy from lurching into recession.

And Australian and Hong Kong central bankers injected funds into their markets to ensure liquidity.

In Europe, the International Monetary Fund said yesterday it had reached a tentative agreement to provide Ukraine with $16.5bn (€13.24bn) in loans and announced that emergency assistance for Hungary had cleared a key hurdle.

In mainland China, the benchmark index slumped to its lowest level in more than two years as investors reacted to dismal earnings reports.

In the Philippines, the key index plummeted 12.3% triggering a circuit-breaker that automatically halted trading for 15 minutes. The biggest one-day drop since February 2007 was caused by “big fund players” withdrawing investments to get cash and meet redemptions at home, traders said.

In Japan, stocks fell despite a report that the government was considering massive capital injection into struggling banks in a bid to calm jittery financial markets.