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U.S. bank crisis unnerves world markets

LONDON, England (CNN) — Markets across Asia and Europe suffered heavy losses as the fallout from the shock sale of Bear Sterns continued — but Wall Street recovered most of its losses on a dramatic Monday.

Banking stocks made steep losses after Bear Sterns — one of Wall Street’s most venerable names — was acquired for a pittance.

Engineered by the U.S. Federal Reserve, JP Morgan bought the investment bank for $2 a share, valuing the bank at $236 million — compared to nearly $70 per share last week and a high last year of $159 per share.

The sale was rushed through to beat the opening bells in Asia but it didn’t stop stocks from plummeting in Asia or Europe.

In Europe Monday, the FTSE 100 fell by 3.86 percent to 5,414 and the French CAC 40 fell to 4,431, losing 3.51 percent. The German Dax suffered most, dropping 4.18 percent to 6,182.

The European banking sector was particularly hard hit, with UBS — whose stock has dipped 62 per cent in the last year — down 13.9 percent, AP reported, while Credit Suisse fell 8.6 percent and Deutsche Bank dropped 4.3.

Sound off: What do you think about the market situation?

In Asia Japan’s Nikkei closed 454.09 down at 11788, losing 3.7 percent, while the Hang Seng fell 1,152.5 to 21085, a fall of 5.18 per cent.

In early trading Monday, the Dow dropped 103.72 to 11847, a fall of 0.87 percent, but managed to just claw into positive territory by the end of the day — by 21.16 points or (0.18 percent).

Despite those figures, more stocks fell in price Monday than rose on the New York Stock Exchange.

The Nasdaq fell 1.6 percent to 2177, losing 35.48.

The jitters followed the announcement Sunday that Bear Stearns had been bought by rival JP Morgan.

JP Morgan and the U.S. Federal Reserve bailed out Bear Stearns on Friday after it finally succumbed to the credit crunch, suffering major cash flow problems.

Also Sunday the U.S. Federal Reserve took the unusual decision to slash its discount rate — which determines the rate at which it borrows funds to financial bodies — by 0.25 percent to 3.5 percent, ahead of markets opening for the new week.

U.S. Treasury Secretary Henry Paulson said Sunday that the decision to rescue Bear Stearns had been the right one and that the U.S. government would do similar again to stabilize markets.

But the action failed to avert sharp drops from Sydney to London — and the fear among many traders around the world is just who or what will next be hit. We are worried about what comes next, said Shim Jae-youb, a strategist at Meritz Securities in Seoul, in comments reported by The Associated Press. Alan Greenspan, former chair of the U.S. Federal Reserve, writing for The Financial Times on Monday, said that market conditions were the most wrenching since the end of the second world war.

Meanwhile gold — which at times of crisis is regarded by investors as a safe haven — continued its record gains of last week, pushing on to a bid price of $$1,023.50 an ounce in London and $1,021.55 an ounce in Zurich, AP reported.

Gold has risen 20 percent in the past year, helped by the fact that it is traded in dollars — something which traders in other currencies hold much of thanks to the greenback’s recent nosedive.

The dollar continued its fall in Asia Monday, plunging to its lowest for 12 and a half years against the yen at at 95.72. It also suffered against the euro, trading at one dollar to 0.629

Oil which rose dollar by dollar last week, again passed another record during Asian trading, with light, sweet crude spiking at $111.80 per barrel, according to AP, before falling back to $104.94 then settling at $105.68.

Alan Greenspan, former chair of the U.S. Federal Reserve, writing for The Financial Times, said that market conditions were the most wrenching since the end of the second world war

CNN International’s Financial Editor Todd Benjamin said: People are afraid that Bear Stearns may not be the last financial institution to get into trouble. They are waiting for the other shoe to drop. Read Todd’s blog Confidence is in short supply right now, and there’s a growing unease that neither aggressive easing by the Fed, or keeping a major Wall Street securities firm afloat, will end the crisis. E-mail to a friend

Copyright 2008 CNN. All rights reserved.This material may not be published, broadcast, rewritten, or redistributed. Associated Press contributed to this report.

U.S. bank crisis unnerves world markets – found here.

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March 18, 2008 - Posted by | Uncategorized

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