Banks crisis haunts markets as Obama steps up
AFP - 6 minutes ago
NEW YORK (AFP) - - The poisonous fallout from the global banking collapse sent stock markets reeling on Tuesday and sparked fresh concerns about the economic crisis facing Barack Obama as he is sworn in as US president.
Fears that the global financial crisis has a lot further to run were borne out when Royal Bank of Scotland (RBS) on Monday warned its losses last year could reach 40 billion dollars, the biggest loss in British corporate history.
Wall Street stocks fell heavily on Tuesday as renewed worries about the global banking sector offset the optimism surrounding Obama's inauguration.
The Dow Jones Industrial Average dropped 1.48 percent in the first exchanges, as trading opened after a holiday.
Analysts said market tensions rose amid news of a new bailout for Royal Bank of Scotland, triggering fears of a nationalization of the banking system in Britain and a worsening global credit crunch.
"The current leaning indicates that Mr. Obama's honeymoon period will be a short one -- it may already be over," said Patrick O'Hare at Briefing.com.
The London stock market fell Tuesday, a day after a massive plunge, and Asian equities slid sharply.
Shares in Britain's Lloyds Banking Group plunged 46 percent Tuesday on rumours of more massive writedowns of its assets.
Asian markets staggered under the weight of concerns for the banking sector, with the mood soured by car maker Toyota which reported its first sales drop in a decade.
Tokyo dived 2.31 percent, Hong Kong 2.9 percent and Sydney 3.1 percent.
In European afternoon trade, London was down 0.35 percent after an earlier bounce, dragged down by banking stocks. Frankfurt was down 0.63 percent and Paris 1.36 percent, with banks particularly hard hit.
The British pound tumbled to a seven-year low against the dollar and a record trough of 125.90 yen, hit by mounting fears for the British economy and its struggling banking sector, dealers said.
The pound was at 1.3943 dollars on Tuesday afternoon. The euro briefly slipped below 1.2900 dollars to a six-week low of 1.2893 dollars.
"There's nothing like a good bank panic to put the skids under sterling," said Piers Cracknell, commercial director at currency specialists Moneycorp in London.
"Not only did the RBS story make investors nervous about British banks, it made them twitchy about the global financial sector as a whole."
The car sector was also in focus on Tuesday.
Struggling US carmaker Chrysler held talks with Fiat and France moved to prop up its auto sector.
Chrysler is one of the three big US auto makers that have been brought to their knees by the world economic slowdown, forced to seek government help to rescue them from a collapse that could threaten million of jobs.
Japan's giant auto makers have also been battered by the slowdown and its government said in a report Tuesday that its economy was "worsening rapidly."
"A new political era begins today with Barack Obama taking the oath and becoming the 44th President of the US," said Calyon analyst Stuart Bennett.
"Expectations both in the US and the rest of the world are high that its knight in shining armor has arrived and armed with a huge stimulus package will rescue both the US and global economy from the clutches of recession."
Obama is expected to push through a massive new stimulus package of up to 825 billion dollars to kickstart the US economy.
But renewed worries about the financial crisis threatened to overshadow his inauguration.
"On Wednesday Washington, Main Street and Wall Street return to the reality that the nation is rapidly plunging deeper into recession," said Fred Dickson at DA Davidson & Co.
-- Dow Jones Newswires contributed to this story --
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