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U.S. economic woes trickle into foreign markets

Thursday, September 18, 2008 | 1:13 p.m. CDT; updated 1:34 p.m. CDT, Thursday, September 18, 2008

FRANKFURT, Germany — European stocks — which had climbed higher after three days of losses — dipped lower in trading Thursday despite a concerted effort by central banks to pump billions more U.S. dollars into troubled money markets and limit the global financial crisis. Asian markets fell.

In Frankfurt, the German DAX rose just slightly by .04 percent, lifted in part by shares of automaker Volkswagen AG, whom investors believe will likely be completely taken over by Porsche SE in the coming weeks.

Analysts said the initial gains in European markets were largely the result of the announcement by the European Central Bank, Federal Reserve and central banks in Switzerland, Japan, Britain and Canada, to provide as much as $180 billion in extra dollars to cash-starved banks.

In a statement, the Fed said it had authorized the expansion of swap lines, or reciprocal currency arrangements, with the other central banks, including amounts up to $110 billion by the ECB and up to $27 million by the Swiss National Bank.

The Fed also said new swap facilities were authorized with the Bank of Japan for as much as $60 billion; $40 billion for the Bank of England and $10 billion for the Bank of Canada.

Some analysts said the worst is yet to come, nodding to fears that other American Wall Street heavyweights may start to teeter.

Andre Chassagnol, head of research at Paris-based brokerage HPC, said Thursday's share price gains were just a knee-jerk reaction to this week's steep drop, and said he was advising clients to get out now.

"I would get out and wait for the real crash," Chassagnol said.

Investors were shaken by the Federal Reserve's $85 billion emergency loan to AIG, the huge U.S. insurer that lost billions in the risky business of insuring against debt defaults. AIG became the latest victim of the historic financial turmoil that's engulfed Wall Street over the last year.

The crisis, a result of problems with souring mortgage debt and restricted credit, has already brought down Wall Street giants Lehman Brothers, Merrill Lynch and Bear Stearns. The two independent investment banks left standing — Morgan Stanley and Goldman Sachs Group — remained under scrutiny.

"It's a complete collapse of confidence," said Francis Lun, general manager of Fulbright Securities Ltd in Hong Kong. "The financial crisis in the U.S. is hitting everyone, everyone is running for cover. If the largest insurance company can fail, then no one is safe."

Oil prices broke back above $100 a barrel Thursday amid growing concerns about U.S. financial turmoil, then gave back some of their gains as a Federal Reserve cash injection into the credit markets calmed investors.

Light, sweet crude for October delivery added 26 cents to $97.42 a barrel in mid-day trading on the New York Mercantile Exchange. Earlier, the contract reached as high as $102.24 a barrel as worries intensified about the stability of the U.S. financial system.

In Paris, the CAC 40, the French stock exchange, was up 1.1 percent before falling back 1.1 percent by the close of trading.

Losses were also seen on exchanges in Madrid, where the SMSI was down more than 4.5 points to close at 1,140.11. In Stockholm, shares fell nearly half a percent.

Elsewhere, Russia's main stock exchanges remained mostly closed Thursday, a day after regulators suspended trading amid a drop in share prices. The MICEX resumed limited trading; the RTS was set to reopen Friday.

ITAR-Tass and Interfax quoted Russian Finance Minister Alexei Kudrin as saying that Russia's three largest banks will get an extra 60 billion rubles ($2.36 billion) to help bolster the financial markets.

In early afternoon trading in New York, the Dow Jones industrial average fell 47.46, or 0.45 percent, to 10,562.20.

Broader stock indicators also remained volatile. The Standard & Poor's 500 index fell 8.92, or 0.77 percent, to 1,147.47, and the Nasdaq composite index slipped 8.84, or 0.42 percent, to 2,090.01.

Across Asia, stocks fell but managed to erase most of the sharp losses that arose after Lehman Brothers Holdings Inc. filed for bankruptcy protection and insurer American International Group Inc. was bailed out by the U.S. government.

Hong Kong's Hang Seng Index, which sank more than 7 percent at one point, closed virtually flat at 17,632 points. Tokyo's Nikkei 225 index, also paring early losses, ended down 2.2 percent to 11,489.30, a three-year low.

 

 


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