VARIOUS: Asian and European stocks tumble but Japan's PM insists his county's economy is robust and analyst counsels against doom and gloom

Rekindled concerns about a credit squeeze cause stock markets in Tokyo, Hong Kong and Europe to fall, but Japan's Prime Minister Shinzo Abe says his country's economy is still strong and a British analyst says the situation's not as dire as it seems. Asian stock markets dropped on Wednesday (August 15) on rekindled worries about a credit squeeze and exporters were hit by concerns about a slowdown in the U.S. economy. Tokyo share prices fell to their lowest point in more than eight months, with the benchmark Nikkei average declining 2.19 percent or 369.00 points to 16,475.61, the lowest close since Dec. 8, 2006. In Hong Kong, the Hang Seng Index fell 626.52 points to 21380.80. Concerns about the credit market grew after a U.S. investment firm wanted to halt redemptions on Tuesday and a Canadian trust couldn't find funds to repay some short-term debt. Yet Japanese Prime Minister Shinzo Abe said on Wednesday that Japan's economy remains solid. "I think the Japanese economy has remained strong but I will be watching it carefully," he said. The Tokyo stock moves were copies in other parts of the region as Asian stocks tumbled with financial and exporter shares, such as Macquarie Bank and Sony, hit by fresh worries about the global credit sector and the health of the U.S. economy, the region's top export market. A cut in Wal-Mart's profit forecast as well as news that a U.S. investment firm wanted to halt redemptions and a Canadian trust could not find funds to repay some short-term debt had sent Wall Street shares down. European stocks fell for the fourth session in five on Wednesday as fallout from strained credit markets hit global equities, while government bonds rallied sharply as investors streamed out of riskier assets. Germany's DAX opened at 7391.48 points and at 09:07 a.m. (0707 GMT) stood at 7343.66 points. Some of the market's most widely-watched measures of risk appetite signalled there is growing concern that what began as a deterioration in the U.S. mortgage market has now become a widespread financial problem. But even as the global credit risk storm rolled into emerging markets and currencies, the world's major central banks were gaining in confidence that the worst of the short term credit squeeze might be over -- progressively withdrawing the cash they have injected into money markets. For the first time since last Thursday the European Central Bank, like the U.S. Federal Reserve a day earlier, gave no extra short-term money to keep the financial system operating smoothly and central banks in Japan and Switzerland actively drained cash from their local markets. Reuters' Europe Treasury Editor Nick Edwards counselled against too much doom and gloom: "Overall stock markets have not fallen dramatically from their highs," he said. "Yes, they've erased a large part of the gains they've had so far this year in Europe but they're still up for the year in the US just about so it could conceivably get worse. But economic fundamentals remain really strong and company balance sheets on the whole are firm too. So once the fear leaves the market that the credit cycle is going to lock up, then things could bounce back but it could also get worse before it gets better." And he said prospects were not all grim for individual investors. "It means that the mutual funds they own, they're going to get hit," Edwards said. "It's going to be difficult to exit those positions if you are an individual trader in stocks. It's a very volatile time to be there and you could lose money. Essentially your pension is going to suffer short term but over the longer term, there is an opportunity that now is the time to buy and if you have a ten year holding cycle, you might be fine." Corporate borrowing costs continued to rise. Europe's most widely watched gauge of credit sentiment, the iTraxx Crossover index which is made up of 50 mostly "junk"-rated credits, rose 15 basis points to 365 points. The index is down from its high for the year above 500 basis points, but has gained about 7 percent since Monday alone. The dollar, sterling, euro and Australian and New Zealand dollars all fell to their weakest points since late March/early April against the yen.

ITN Source | August 15, 2007

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