Asian Markets Slide as Economic Gloom Deepens

TOKYO ~ Asian stocks tumbled on Thursday as global economic gloom deepened following a plunge in Japanese exports and a warning from the Federal Reserve that the United States could be in recession next year.

Fears of an implosion of the US car industry continued to weigh heavily on investors’ minds as the “Big Three” begged for government aid to survive the worst financial crisis since the Great Depression in the 1930s.

Japanese exports dropped at the fastest pace in almost seven years, pushing Asia’s largest economy deeper into recession as the global economic slump curbs international trade flows.

Dealers’ screens around Asia were flashing red. Stocks dropped 4.3 percent in Tokyo, 5.1 percent in Hong Kong and 4.9 percent in Seoul in early trade.

Overnight on Wall Street the Dow Jones Industrial Average sank 5.07 percent, hitting the lowest level since March 2003.

“Investors tend to react nervously to negative data signalling recession,” said Kazuhiro Takahashi at Daiwa Securities SMBC.

“There is also caution regarding a possible bailout of the Big Three. It has not taken a concrete shape yet and there are fears that the negotiations may fail.”

The heads of the Big Three US car makers – General Motors (GM), Ford and Chrysler – returned to Congress for a second straight day Wednesday to beg for an emergency bailout.

In Britain, the Society of Motor Manufacturers and Traders and the Retail Motor Industry Federation called on the government to shield the British automotive sector from a credit squeeze through loans and possible guarantees.

The US economy remained on the ropes as figures showed construction starts on new homes and housing building permits fell to record lows in October as the prolonged slump in the real-estate sector deepened.

Data from the world’s two biggest economies “pointed to deep economic problems,” said Dariusz Kowalczyk, chief investment strategist at CFC Seymour in Hong Kong.

“The US will not emerge from recession until at least the second quarter of 2009 and Japan the third quarter,” he warned.

The Fed sharply cut its outlook for the world’s biggest economy for 2009, saying it could grow as much as 1.1 percent or contract 0.2 percent.

Official data showed US consumer prices plunged a record 1.0 percent in October – the steepest one-month decline in 61 years, led by oil prices plummeting from their July record highs.

“With economic growth and inflation pedalling backwards, deflation talk is deafening,” said Jennifer Lee at BMO Capital Markets. “Tighten your seatbelts as fourth-quarter growth is going to be ugly.”

The grim economic news and the prospects for weaker demand for energy pushed down oil prices. New York’s main futures contract dropped 80 US cents to $52.82 a barrel in early Asian trade.

In Europe, a spokeswoman for the German economy ministry said the European Commission was planning a 130-billion-euro ($163-billion) economic stimulus program, but few details were available.

China announced a series of tax cuts aimed at helping its textile industry through the global financial crisis.

The International Monetary Fund meanwhile said its executive board approved a loan of $2.1 billion for Iceland to help the country rebound from a dire financial crisis.

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