Markets battered despite AIG rescue

Central banks announce plan to boost liquidity in money markets amid falls at Asian bourses.

singapore aia insurance panic rush
Asia bourses have continued global markets' downward spiral [EPA] Asia bourses have continued global markets' downward spiral [EPA]

European bourses recorded opening gains on Thursday after the British bank Lloyds confirmed it had bought out Halifax Bank of Scotland (HBOS) in a $22bn deal.

HBOS shares had been badly hit over the past week, losing more than two-thirds of their September 9 value.

Liquidity plan

Amid the continuing financial turmoil on Thursday, several central banks announced a co-ordinated plan to boost their respective domestic money markets.

“Today, the Bank of Canada, the Bank of England, the European Central Bank, the Federal Reserve, the Bank of Japan and the Swiss National Bank are announcing co-ordinated measures designed to address the continued elevated pressures in US dollar short-term funding markets,” the Bank of England said in a statement.

“These measures, together with other actions taken in the last few days by individual central banks, are designed to improve the liquidity conditions in global financial markets.

“The central banks will continue to work together closely and will take appropriate steps to address the ongoing pressures.”

The US Federal Reserve also announced a temporary $180bn cash line as part of the joint campaign.

The Fed said the move would “provide dollar funding for both term and overnight liquidity operations by other central banks”.

Panic selling

Juliette Saly, a senior analyst in one of Sydney’s leading online brokerages, said fear, not market fundamentals, was behind the slippage in global bourses.

Share markets around the world are reeling from the US financial crisis [AFP]

“Investors are still unnerved by the fear and panic. The bail-out of AIG was not the quick-fix solution that investors were hoping for,” she told Al Jazeera.

“The thought that one of the world’s largest companies could collapse just sent ripples throughout investors.”

With the markets losing value, investors have headed for safer ground, with gold futures making their biggest gains in two decades.

Share prices on Wall Street fell on Wednesday despite attempts by the US government to ease market concerns by bailing out AIG on Tuesday.

But the Dow Jones Industrial average slid 451.88 points (4.09 per cent) to 10,607.14 at the close of trading on Wednesday, its second massive loss in three days.

AIG had faced a cash crunch after $18bn of losses over three financial quarters, largely because it faced a rush of insurance claims from people who had defaulted on their property mortgages.

AIG’s bail-out brings to about $900bn the total of US rescue efforts to stabilise the financial system and housing market.

Source: Al Jazeera, News Agencies