Korean, global markets slip on US, European debt woes

Fears that the U.S. credit rating will suffer a downgrade on signs of a double-dip recession and reigniting worries of a fiscal crisis in Italy battered the Korean and global financial markets Wednesday.

Stock markets tumbled across Europe and the Asia-Pacific region, with Korea seeing the biggest drop. The Korean stock market has dropped 5 percent over the past two days, with about 60 trillion won (56.7 U.S. billion dollars) in total market capitalization evaporating.

The benchmark KOSPI fell 55.01 points (2.59 percent) to close at 2,066.26 Wednesday, as foreign investors unloaded 786.8 billion won (744 million dollars) of shares. Including Tuesday, the index has plunged 106.05 points over the past two days, with foreign net sales amounting to 1.16 trillion won (1.1 billion dollars).

A combined 59.65 trillion won (56.4 billion dollars) of market capitalization evaporated in the KOSPI market over the two days, equal to the reduction of Japan’s GDP in the wake of the March 11 earthquake.

Japan’s Nikkei average fell 2.11 percent, while the Taiwan Taiex index dropped 1.49 percent and China’s Shanghai Composite index 0.03 percent. In the U.S., the Dow lost 2.19 percent Tuesday and the tech-heavy NASDAQ slid 2.75 percent to a yearly low.

Global stocks dropped mainly on U.S. economy fears. On top of dismal manufacturing data, reports showed disappointing second-quarter U.S. GDP estimate, while consumer spending fell for the first time in nearly two years in June. These factors all pointed to a major slowdown of the world’s largest economy.

Harvard University economics professor Martin Feldstein told Bloomberg TV, “I think there’s now a 50-percent chance that we could slide into a new recession,” adding, “Nothing has given us much growth.”

Risk aversion grew amid the spread of debt woes in the U.S. and Europe. On the New York Mercantile Exchange, gold futures for December delivery rose 22.80 dollars (1.4 percent) Tuesday to close at 1,644.50 dollars per ounce.

In Korea, the won lost 9.6 points to the dollar from Tuesday to close at 1,060.40, as the greenback strengthened on heavy demand from nervous investors seeking safety even amid jitters over the world’s largest economy.

artemes@donga.com