MercoPress. South Atlantic News Agency

Uncertainties and “rough spots” ahead for world markets

Leading Asian markets plunged in the aftermath of the collapse of one of the US top investment banks, Lehman Brothers. Shares in Japan, South Korea, China and Taiwan were down by 4 to 6%, having been shut on Monday for a bank holiday.

The figures reflected earlier falls in Europe, Latinamerica and the US, which on Monday had its worst day's trading since 9/11. The fourth-largest US investment bank, Lehman filed for bankruptcy protection on Monday, becoming the latest victim of the global credit crunch. Japan's benchmark Nikkei-225 index dropped 5.3% in morning trading, Shanghai's index fell around 4%, and shares in South Korea and Hong Kong shares shed about 6% in value. Markets in Taipei and Singapore were also sharply down, and the pattern was repeated in Australia and New Zealand, although the falls were smaller. The collapse of Lehman, which had incurred billions of dollars of losses from the failing US mortgage market, threatened to deal a further blow to other financial institutions, as they unwind deals with the former investment giant. Stock markets in Europe plummeted on Monday as Lehman's failure raised fears about the strength of the global financial system. Banking shares were hardest hit. On Wall Street, the Dow Jones industrial average fell nearly 4.5%, while the London FTSE 100 index of leading UK shares closed down 4%. Germany's DAX was down 2.74% and Paris CAC 40, 3.78%. In Latinamerica Brazil's Bovespa plunged 7.19% as investors fled to more secure investments; Argentina's Merval lost 5.19% and Mexico's IPC, 3.79%. Meanwhile, there are fears AIG, once the world's largest insurers, could also face collapse. It is taking steps to raise money amid reports it is seeking an emergency loan from the US Federal Reserve. Central banks have moved to reassure markets. The US Federal Reserve has broadened its emergency lending scheme and the UK and European central banks have injected a total of 39 billion US dollars into the financial system. Earlier, US Treasury Secretary Henry Paulson said the US was "working through a difficult period in our financial markets right now as we work off some of the past excesses". He said Americans could remain confident in the "soundness and resilience" of the US financial system. But he warned that uncertainty remained and it was likely that there would be further "rough spots" ahead until the correction of the US housing market was completed. Mr Paulson said he was committed to working with regulators in the US and abroad, as well as policymakers in Congress to take the necessary steps "to maintain the stability and orderliness of our financial markets". But he gave no details of what such steps might mean. Earlier in the day President George W Bush said: "In the long term I am confident that our financial markets are flexible and resilient and can deal with these adjustments".