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World markets recover much of their early losses

World markets recover much of their early losses

U.S. and European stock markets recovered much of their early losses, helped by investors looking for bargains after sharp drops in Asia overnight, although the mood in financial markets remains dark on fears of a global recession.
The Dow Jones industrial average was down just 7.65 points, or 0.1 percent lower, at 8371.30 in early New York trading. They were almost 1 percent lower on the open.
U.S. stocks were supported by bargain hunting as well as a rare piece of good news from economic data. The Commerce Department said sales of new single-family homes rose 2.7 percent in September, far better than economists' expectations for a drop.
"Good news is pretty thin on the ground these days, so the latest figures on new home sales in September should be cherished," said Paul Ashworth at Capital Economics.
European shares were still in the red, but retraced the majority of the losses they suffered on the open, when they followed Asian markets lower.
Britain's FTSE 100 index was 0.2 percent lower at 3875 after having been down 4.9 percent in the morning. Germany's DAX, which was likewise down almost 5 percent earlier, recovered to trade only 0.5 percent lower at 4276. This was helped by an 80 percent rise in the share price of Volkswagen AG following news that Porsche AG wants to increase its stake in the car manufacturer.
The CAC 40 in France fared worse, falling 2.1 percent at 3126 after being almost 7 percent lower. Renault SA and Peugeot SA fared worst there after they said they are expecting to be hit hard by an economic downturn.
The early losses were driven by an overnight slump in Asian markets. The Nikkei index in Japan closed down 6.4 percent to 7,162.90 _ the lowest since October 1982 _ as the financial crisis raised recession fears and drove up the yen, piling the pressure on the country's exporters.
Despite the recovery in late European trading, the mood in financial markets remains plagued by uncertainty over the scale, length and impact of a global economic downturn.
"The duration of the world recession will be as damaging to world markets as its depth. In the industrialized world, it is likely to drag on well into 2009," wrote Peter Dixon, from Commerzbank in London, in an analysis note.
This prospect has caused investors to flee what they consider riskier investments, such as emerging economies in Latin America, Asia and eastern Europe. The International Monetary Fund said Sunday it had reached a tentative agreement to provide Ukraine with $16.5 billion in loans and announced that emergency assistance for Hungary had cleared a key hurdle.
Sharp movements in investment capital has had the effect of causing enormous swings in currency markets, mainly boosting safe-haven currencies like the dollar and the Japanese yen.
This has prompted the world's seven leading industrial nations to issue a statement Sunday warning about the "recent excessive volatility" in the value of the Japanese currency, which is rising against the U.S. 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 coordinated intervention to stem the yen's appreciation and could be the precursor to joint interest rate reductions too to help calm markets and provide some impetus to the stalling global economy. The U.S. Federal Reserve is already expected to cut its key interest rate a half percentage point to 1 percent at a two-day meeting that ends Wednesday. European Central Bank president Jean-Claude Trichet also indicated a rate cut was possible at the bank's meeting next month.
"The G7 statement has increased the chance of early coordinated rate cuts this week," said Hans Redeker, global head of FX strategy at BNP Paribas.
The yen has appreciated so quickly because some investors have in the past borrowed in Japan to invest in higher risk economies. When they undo those trades in times of uncertainty, the yen gets a massive boost against other currencies.
The euro and the pound continued to drop, with the pound 3 percent lower at $1.5449 and the euro down 1.3 percent down at $1.2442. The euro is under pressure from fears about banks' exposure to emerging markets and expectations the European Central Bank will cut interest rates.
Economic data this week is likely to further stoke concerns about the global economy. Earlier Monday, the well-respected Ifo Institute in Germany reported that its main activity index fell to a five-year low 90.2 in October.
Monday's sharp stock market declines in Asia 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 percentage point _ its biggest cut ever _ to prevent Asia's fourth-largest economy from lurching into recession, while Australian and Hong Kong central bankers injected funds into their markets to ensure liquidity.
In mainland China, the benchmark index slumped to its lowest level in more than two years as investors reacted to dismal earnings reports. The Shanghai Composite Index lost 6.3 percent, or 116 points, to 1,723. It is now down about 72 percent from its peak about a year ago.
Hong Kong's Hang Seng Index tumbled 12.7 percent to 11,016, its lowest close in more than four years and biggest daily decline since 1991.
Only South Korea's market managed to eke out gains, perhaps in part because of the big rate cut there. The benchmark Kospi ended 0.8 percent higher at 946.45.
In oil, crude prices weakened despite OPEC's move to cut production, an attempt to halt the declines. Light, sweet crude for December delivery was down $1.41 to $62.74 a barrel. Oil prices have plunged more than 57 percent from a record $147.27 in mid-July.
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AP reporters Pan Pylas in London, Jeremiah Marquez in Hong Kong and reporters Tomoko A. Hosaka in Tokyo, Elaine Kurtenbach in Shanghai, Hrvoje Hrankski in Manila and Kelly Olsen in Seoul contributed to this report.


Updated : 2020-12-02 01:38 GMT+08:00