07/11/2008 08h04
TOKYO, (AFP) - Fears of a deep global recession kept world markets under pressure Friday, as South Korea cut interest rates and the International Monetary Fund warned major economies will contract next year.
The IMF called for government spending to battle the financial crisis, which prompted Britain's central bank to slash its key lending rate by an unprecedented 1.5 percentage points on Thursday.
Tokyo's Nikkei stock index closed down 3.55 percent after dropping as much as seven percent at one point following a profit warning from Toyota. Sydney lost 2.4 percent. "Despite huge rate cuts in the UK and Europe, the markets continued to fall on continued concerns over the deteriorating global economy," said Ben Potter, research analyst at IG Markets in Australia.
Hong Kong shares opened sharply lower but managed to rebound to show a gain of 1.4 percent at midday, while Seoul added 3.9 percent as the rate cut there cheered investors amid the gloomy economic outlook.
The IMF said the downturn in leading economies would be "broadly comparable in magnitude" to recessions in 1975 and 1982, but that recovery "is projected to begin late in 2009."
In sharp downward revisions to economic projections made less than a month ago, the IMF said advanced economies were now seen shrinking by 0.3 percent in 2009, instead of the prior estimate of 0.5 percent growth.
It lowered its global economic growth forecast to 2.2 percent. Investors were also bracing for Friday's report on US payrolls for October to show a loss of 200,000 jobs amid weak economic momentum.
Investors were beginning to take the view that "the US may in fact suffer the deepest and longest recession of any economy," said Clifford Bennett, chief economist at Sonray Capital Markets in Australia.
"This time it may be a case of first into recession, and last out, for the US," he warned.
South Korea's central bank cut its benchmark lending rate for the third time in a month, by a quarter of a point to 4.0 percent -- its lowest level since February 2006 -- as it tries to stimulate its export-driven economy.
AFPTV/EBSMeanwhile, the IMF said it was awarding a loan of 15.7 billion dollars to Hungary, among the first emerging market countries to suffer from the fallout of the global crisis that began in the US subprime mortgage sector.
The Bank of England slashed its key lending rate to 3.0 percent Thursday, while the European Central Bank cut its main lending rate by half a percentage point to 3.25 percent. Normally, a reduction in borrowing rates would be a strong buy signal but markets were suspicious about the need for such drastic action, especially in Britain, believing the economy must be seriously at risk, dealers said.
The dollar fell to 97.52 yen in Tokyo afternoon trade, down from 97.72 in New York late Thursday. The euro rose to 1.2747 dollars from 1.2713.
"Investors are worried that things are going to get worse, and that the financial system and the economy are unlikely to get back to normal any time soon," said Masatsugu Miyata, chief forex dealer at Hachijuni Bank.
US stocks had tumbled for a second day in a row Thursday as the euphoria of Barack Obama's presidential election victory Tuesday dissipated in the face of the brutal financial crisis.
Leaders of the struggling US car industry travelled Thursday to Washington asking for more help from the government to staunch the haemorrhaging of their balance sheets.
There was gloomy news Friday from Japan Airlines, Asia's largest carrier, which said its operating profit fell by 47 percent in the fiscal first half, hit by high fuel costs and the tough economic climate.
With Japanese electronics giants also feeling the pain, Panasonic Corp. said it aimed to take over its struggling rival Sanyo Electric Co. to create a new industry heavyweight better placed to ride out the slump. In Argentina, lower house lawmakers approved a law nationalising private pension funds, allowing the government to take over some 26 billion dollars in retiree fund assets.
Source: AFP online
