World stock markets sink on Wall Street crisis

Asian and European stock markets slump today as they absorbed the shock news spilling out of Wall Street.

Asian and European stock markets slumped today as they absorbed the shock news spilling out of Wall Street, with Lehman Brothers saying it would file bankruptcy and Merrill Lynch's US$50 billion (Dh183bn) sale to Bank of America. In Europe, the London FTSE-100 share index was down 2.72 per cent, the Paris CAC-40 dropped 3.52 per cent and Germany's DAX 30 index fell 2.99 per cent. The dollar weakened marginally against euro and the pound, which rose to $1.4299 from $1.4215 and to $1.8052 from $1.7937 late Friday.

Financial shares were hard hit worldwide, with shares in the UK's Halifax-Bank of Scotland down more than 13 per cent. Royal Bank of Scotland value was down 6.3 per cent, and Barclays, which had considered a combination with Lehman Brothers but walked away, was down eight per cent. Switzerland saw similar declines, with UBS down more than seven per cent and Credit Suisse down 5.5 per cent. Reinsurer Swiss RE fell more than five per cent in early trading Monday.

Asia's biggest stock exchanges in Japan, Hong Kong and South Korea were closed for holidays, but every market open was deep in the red. India's Sensex tumbled 5.4 per cent, Taiwan's benchmark plummeted 4.1 per cent, Atralia's key index was down two per cent and Singapore dropped 2.9 per cent. The declines came as Wall Street and the government took a series of steps aimed at bringing an end to the credit crisis that has rocked the global financial system for about the last 18 months.

The market's drop came amid new economic uncertainty on Wall Street, with the 158 year old Lehman Brothers filing for Chapter 11 bankruptcy. The company was crippled by $60bn in soured property holdings and unable to find an investment partner to throw it a lifeline. Meanwhile, a government-brokered takeover saw investment bank Merrill Lynch taken over by the Bank of America for $50bn, while a forced restructuring of the world's largest insurance company, American International Group, also weighed heavily on global markets as the effects of the credit crisis intensified.

AIG said it was discussing options with outside parties to improve its business. The Wall Street Journal said on its website Sunday that AIG may announce a turnaround plan today that would involve selling assets such as its aircraft leasing business. A global consortium of banks, meanwhile, announced late yesterday a $70bn pool of funds to lend to ailing financial companies, a move geared toward preventing a worldwide panic on stock and other financial exchanges.

The US Federal Reserve chipped in with more largesse in its emergency lending program for investment banks. The shake-up was needed to restore confidence in the markets, said Lorraine Tan, director at Standard & Poor's equity research in Singapore. "A lot of people are getting burned," she said. "It's better to get this out of the system." Investors fearful that the financial distress could spread to Asia to sent regional bank stocks plunging. Macquarie Group, Atralia's largest investment bank, plummeted 9.6 per cent.

In Taiwan, Shin Kong Financial lost 6.9 per cent stock index futures were down sharply, suggesting that shares would drop when trading opened in New York this morning. The Dow Jones indtrial average futures index was down 2.6 per cent. The dollar was also down sharply, falling to 105.69 yen from 107.92 yen late Friday. The euro jumped to $1.4432 from $1.4229 Friday. Oil fell below $100 a barrel in Asian electronic trading after Hurricane Ike inflicted minimal damage to oil installations on the Texas coast. Light, sweet crude for October delivery declined $2.10 to $99.08 a barrel. On Friday, the contract slipped to $99.99 per barrel briefly before closing at $101.18. The last time Nymex crude had traded below the $100 mark was April 2. * The National staff with AP