Asian shares hit a six-week low today and safe-haven Japanese bond futures rose to their highest since Lehman Brothers collapsed in September as the US banking crisis deepened, sparking fears of prolonged financial turmoil.
Bank of America Corp and Citigroup shares plunged last night as investors questioned whether the firms have enough capital to cover losses from toxic assets.
The market turbulence - with European shares also set to fall at the open - is another blow to major economies and many consumers who are facing the toughest conditions in decades, as evidenced by more gloomy data out of the United States, Germany and Japan.
The European Central Bank is expected to slash interest rates later in the day in a bid to stimulate growth, though uncertainty about how deep the cut will be helped send the euro to multi-week lows yesterday.
"A continued flow of bad economic data is pointing to a steeper global recession and worsening concerns about corporate earnings," said Lee Sun-yeob, a market analyst at Goodmorning Shinhan Securities in Seoul.
"Increasingly bearish prospects for global banks' results are also pressuring sentiment."
The MSCI index of Asia-Pacific shares excluding Japan dropped 5.2 per cent as of 7.05am, heading for its biggest percentage daily fall since mid-November.
The last time worries about Citigroup's fate undermined global equity markets was in November, when the US government stepped in to prop up the lender with government funds.
The MSCI index today hit its lowest since December 8th, down almost 9 per cent for the year. The deep falls over the past week and a half are rapidly denting a rally that still has shares up about 17 per cent since hitting five-year lows in November.
Policymakers worldwide have responded since late last year by slashing interest rates and announcing massive government spending plans, but the actions have yet to fully convince investors.
Data yesterday showed December US retail sales tumbled and Germany's economic growth slipped to a three-year low in 2008. In Japan, core machinery orders fell by a record amount in November, data showed today.
"The problems are global and there isn't any real good news around," said Martin Angel, a dealer at Patersons Securities in Australia. "You are just not going to escape it."
Japan's Nikkei average dropped 4.9 per cent, with Nissan Motor slipping 3.4 per cent on news it will post an annual operating loss because of sliding sales and a soaring yen.
Reuters