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U.S. Credit Crunch Hurts Global Stocks

Posted August. 11, 2007 07:09,   


Financial and stock markets tumbled worldwide as concern increased that a widening subprime mortgage, or higher risk home loans, may hurt economic growth, raising fears for a global financial crisis.

The major G7 banks, including the U.S. Federal Reserve, the Bank of Japan and the European Central Bank, injected more than $160 billion into markets, but stock prices extended a global slump amid widening worries over the credit crunch.

BNP Paribas, the largest investment bank in France, announced on Thursday (local time) that it would halt withdrawals from three investment funds because of U.S. subprime mortgage woes. The announcement pulled down global markets.

The Dow Jones Industrial Average slid 2.83 percent, France`s CAC-40 dropped 2.17 percent, London`s FTSE-100 fell 1.92 percent and The DAX-30 index of Germany plunged 2 percent. The shock waves continued to be felt in Asia on the following day. All Asian stocks including Korea`s KOSPI index also witnessed plunges on Friday.

The Korea’s KOSPI index fell 80.19 points, or 4.2 percent, to 1,828.49, reducing 43 trillion won of aggregate value of listed stocks in the KOSPI and KOSDAQ.

Japan`s Nikkei stock average dropped 2.37 percent, Hong Kong`s blue chip Hang Seng index shed 3.18.percent, and Taiwan’s benchmark index also slid 2.73 percent.

Central banks of the U.S., Japan, Canada and Australia pushed cash into the market to prevent the financial crisis from further expanding. It was the first time the U.S., European and Japanese central banks had taken such action together since the aftermath of the September 11 terrorist attacks.

The local currency finished at 931.9 won to the U.S. dollar, down nine won from Thursday`s close, as the subprime woes prompted foreign stock investors to snap up the greenback.

The Korean government convened a meeting with officials from the finance ministry, the central bank and financial watchdogs on Friday to discuss the impact of U.S. subprime mortgage defaults on global financial markets. The finance ministry also decided to hold a financial policy meeting on August 13 to discuss specific measures to stabilize the financial market.

aryssong@donga.com lightee@donga.com