Market Watch

Once again Wall Street heard a resounding thump with the major indexes falling more than 4 per cent. Investors scoured through the financial sector looking for the next high profile credit market casualty.

In the last five days, Lehman Brothers filed for bankruptcy and Merrill Lynch was spared that fate by agreeing to a takeover by Bank of America. Most recently, the government put together a last minute emergency rescue package for AIG.

All of this seemed to take its toll on investors as confidence in the financial markets wore thin.

The Dow tumbled 449.36 points, or 4.06 per cent to 10609.66, while the broader S&P 500 dropped 57.21, or 4.71 per cent to 1156.39. The NASDAQ fell 109.05, or 4.94 per cent to 2098.85.

Late Tuesday, the Federal Reserve said it offered American Insurance Group a US$85 billion bridge load in exchange for a near 80 per cent stake in the insurer. The company, which was on the verge of collapse, would probably unload some of its assets to pay back the loan.

On Wednesday, AIG shares fell 45 per cent. In the last month, AIG has lost over 90 per cent of its market value.

Lehman Brothers, which filed for bankruptcy on Monday, sold its North American investment banking and capital markets business to Barclays for $250 million in cash. Barclays also bought Lehman Brothers’ New York headquarters and New Jersey data centres for US$1.5 billion.

Barclays and Bank of America pulled the plug on separate negotiations to buy Lehman Brothers, paving the way for the firm’s bankruptcy. Many said the two potential saviours walked away from the deal because of the government’s reluctance to contribute.

On Wednesday, Lehman Brothers shares fell 56.7 per cent, while Bank of America dropped 7.8 per cent.

Merrill Lynch, which was acquired by Bank of America, slid 12.7 per cent.

Washington Mutual, another company stricken by credit and mortgage market turmoil, fell 13.6 per cent. There was talk that the government was helping put together a deal or a possible takeover for the company.

Citigroup, Morgan Stanley and Goldman Sachs fell 10.9 per cent, 24.2 per cent and 13.9 per cent respectively.

Meanwhile, there were reports that Morgan Stanley and Wachovia Corp were in talks about a possible combination. The New York Times and Wall Street Journal reported that Morgan Stanley's CEO John Mack had received a call from Wachovia.

Wachovia shares were down 20.8 per cent.

The weakness wasn’t limited to the financial sector with all 30 Dow Jones Industrial Average components closing below the gainline.

Notable laggards included Alcoa, Boeing and General Motors, whose shares were down 5 per cent, 7.7 per cent and 8.4 per cent respectively. General Electric dropped 6.7 per cent and Home Depot closed 7.1 per cent lower.

Meanwhile, IBM lost 4 per cent, Intel was off 4.8 per cent and Microsoft slipped 5.5 per cent.

Exxon Mobil and Chevron shed 1.5 per cent and 2.2 per cent despite an increase in crude prices overnight.

NYMEX light crude oil for October delivery rose US$6.01 to settle at US$97.16 after settling at a seven-month low on Tuesday.

Meanwhile, COMEX gold for December delivery rallied US$70 to US$850.50 an ounce.

In economic news, a government report found that construction of new houses and apartments fell to their lowest level in 17 years last month.

Homebuilders Pulte and Centex both fell by about 11.4 per cent.

UK Markets

British shares retreated as the financial sector weakened against a backdrop of rocketing funding costs. Talk of a merger between Lloyds and HBOS only seemed to add to investor anxiety.

The benchmark FTSE 100 fell 113.20, or 2.23 per cent to 4912.40.

The financial sector continued to suffer from a spike in interbank lending rates. Royal Bank of Scotland fell 10.4 per cent, while HSBC was down 4.6 per cent.

Lloyds was reportedly in advanced takeover talks with HBOS. The deal would create a 28 billion pound mortgage giant. Lloyds was flat, while HBOS dropped 19.2 per cent.

Meanwhile, the Bank of England extended the drawdown period for its Special Liquidity Scheme to 30 January 2009 but that did little to help the sector.

Declining metals prices saw miners add to the market’s woes. Rio Tinto and BHP Billiton fell 6.3 per cent and 7.4 per cent in UK trade. Vedanta Resources slid 1 per cent, while Kazakhmys dropped 10.8 per cent.

Like their US counterparts, British energy plays declined despite a lift in crude prices.

BP fell 0.8 per cent and Royal Dutch Shell lost 0.2 per cent. BG Group and Cairn Energy were off 0.1 per cent and 2.4 per cent respectively.

The major retailers helped limit the market’s losses. Sainsbury and Morrison Supermarkets gained 2.2 per cent and 4.1 per cent respectively.

Tesco rallied 4 per cent after announcing a new low-cost range of products and price cuts.

European Markets

European shares backtracked for the third straight session as turmoil on Wall Street heightened investor anxiety. The continents financials led the retread.

France’s CAC 40 fell 87.29 points, or 2.14 per cent 4000.11, while Germany’s DAX shed 104.19, or 1.75 per cent to 5860.98.

Dutch financial services group ING gave up 4.9 per cent and Germany’s Allianz lost 3.5 per cent.

UBS shed 5.7 per cent despite reassuring comments from the Swiss economic minister. Meanwhile, Credit Suisse lost 2.7 per cent.

BNP Paribas fell 3.3 per cent, Societe General gave up 2.9 per cent and Deutsche Bank slid 2.7 per cent.

On the upside, Volkswagen rose 6 per cent. Many agued that the stock rose because hedge funds rushed to cover their short positions in the stock after Porsche’s move to increase its stake in the company on Tuesday. Porsche was 2.9 per cent weaker.

Japanese Markets

Japanese investors saw the market gain yesterday after hitting a three year low on the previous day. Financials regained some ground after news of the Federal Reserve's bailout of American International Group temporarily calmed investors nerves.

The Nikkei 225 added 140.07 points, or 1.21 per cent to end at 11749.79.

Recently battered financials inched ahead yesterday. Mitsubishi UFJ added 1 per cent and Sumitomo Mitsui Financial Group gained 0.7 per cent, while Mizuho Financial Group fell 0.7 per cent.

Exporter Canon, were 3.4 per cent dearer buoyed by the dollars sharp gain against the yen.

Toyota shed 0.4 per cent after its president said the US housing market remains a drag on auto sales. Honda lost 1.5 per cent.

Hong Kong Markets

Hong Kong shares plummeted on Wednesday as investors saw the market hit a fresh 23 month low. Financials and properties sectors were the biggest losers as the global credit crisis strangled markets all over the world.

The benchmark Hang Seng ended down 663.42 points, or 3.63 per cent to 17637.19.

Global lender HSBC shed 2.5 per cent, while Industrial and Commercial Bank of China tumbled 10 per cent.

China Merchants Bank lost 7.7 per cent after the bank told the market it had a $70 million exposure to Lehman Brothers.

In the property sector, Cheung Kong and Sun Hung Kai Properties were both down about 4 per cent. R&F Properties, which is 6 per cent owned by Lehman, sank 12 per cent.

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