Effects of Bailout Failure Ripple Through Global Markets

September 30, 2008 03:00 PM
by Anne Szustek
Asian and European markets react to the U.S. House of Representatives’ rejection of the $700 billion White House bailout bill.
Pacific Rim markets recouped some of their early losses following the post-bailout bill shock; however Japan’s Nikkei index and Australia’s S&P/ASX 400 Index closed around 4 percentage points lower, at a level not seen by either market in some three years.

Share prices of major Japanese exporters such as Sony, Toyota Motor and Honda Motor were all down on the back of trepidation over global markets. However, KOSPI, the South Korean index, managed to pare all of its losses after dropping 6 percent from its opening bell. Financial stocks Shinihan Financial and Korean Exchange Bank weighed down heavily on trading, according to CNBC. After news that the U.S. bailout bill did not pass, Korean market regulators put a temporary halt to short selling.

In contrast, European indices were up slightly during Tuesday trading; however uncertainty over U.S. legislative developments on the Wall Street bailout bill is weighing down any gains.

As of 12:11 p.m. EDT, France’s CAC 40 was up 1.99 percent, and at 11:45 a.m. EDT, the German DAX was up 0.41 percent. The FTSEurofirst flattened before nudging up 0.4 percent.

By 10:31 EDT, London’s FTSE 100 was gaining on the back of a Wall Street morning rebound, up 32.5 points to 4,851.3 for a gain of 0.6 percent. Yesterday the key index plummeted 269 points on the back of news that the House bailout bill fell short of passage.

Many European traders turned toward pharmaceutical stocks, considered a relative safe haven during financial tumult. Franco-Belgian bank Dexia and Irish banks Anglo Irish Bank and Allied Irish Banks saw a sharp uptick in share price after their respective governments promised state protection.

One unnamed trader told CNBC, “No one really expected a no vote, but it’s encouraging that they’re clearly going to vote on this again. Bush and (Henry) Paulson will use their political might to twist people’s arms—if you call heads or tails and lose, you’ll toss the coin again.”

The Jewish holiday of Rosh Hashanah has put on hold Congress’s vote on any new bailout packages—until tomorrow in the Senate and Thursday in the House.

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