World financial developments

A LOOK at financial developments and what happened in some stock markets around the world on Wednesday:
Iceland's central bank slashed official interest rates by 3.5 percentage points as it warned that the collapse of its banking system will lead to a 'very sharp' contraction in the Nordic nation's economy. The central bank, Sedlabanki, also said it will carry out daily auctions in the foreign exchange market to ensure supplies of foreign currency to the increasingly isolated island country.

Greece has pledged up to 28 billion euros (S$56 billion) to help its banking sector weather the financial crisis. Finance Minister George Alogoskoufis stressed that the measures were temporary and that the government aimed to not burden taxpayers. Under the rescue package, up to 8 billion euros will be issued in bonds to boost liquidity. Banks will also be allowed to ask for up to 5 billion euros in state capital in exchange for shares, the minister said.

German Chancellor Angela Merkel urged lawmakers to support her government's planned financial rescue package, worth up to 500 billion euros, arguing that dangers to market stability have not yet been banished. The German package foresees up to 400 billion euros in lending guarantees for banks, and both houses of parliament are expected to vote Friday. Germany's DAX ended 337.56 points, or 6.5 per cent, lower at 4,861.63.

Mr Donald Tsang, Hong Kong's chief executive, said the meltdown was even worse than the 1997 Asian financial crisis and would take a far bigger toll on the global economy. Hong Kong's Hang Seng Index lost 834.58 points, or nearly 5 per cent, to close at 15,998.30 after rising more than 13 per cent the previous two days.

Brazil's Ibovespa stock index plunged 11.4 per cent to 36,833, triggering the automatic 30-minute suspension of mid-afternoon trading. Vale do Rio Doce, the world's largest iron ore miner, lost 15.2 per cent, while state-run oil company Petrobras fell 12 per cent as crude hit a 13-month low. Together, the two companies comprise 34.5 per cent of the Ibovespa. Last week, the index lost 25 per cent of its value, but had its biggest one-day gain in a decade on Monday.

British Prime Minister Gordon Brown called for sweeping change in global financial institutions as European Union leaders sought to expand their efforts to rescue their banking system to all 27 member countries at a summit.

The Group of Eight major industrial nations announced in Brussels, Belgium that they will hold a global summit - perhaps as early as November in New York - to forge common action to prevent another economic meltdown. -- AP


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