Markets tumble as US auto industry is left stranded

AFP - Global stock markets tumbled on Friday as fears mounted of a collapse of the Big Three US automakers after the US Senate refused to throw them a financial lifeline, traders said.

Share prices plunged in Asia, Europe and the United States as the White House sought ways to save the auto industry after the Senate failed to agree on a 14-billion-dollar rescue plan.

"The buying we saw early this week has quickly run out of steam and with the US automaker bailout failing in the Senate overnight, the consequences for the market are looking increasingly dire," said City Index market strategist Joshua Raymond.

European stock markets were down despite the European Union's announcement of a 200-billion-euro (260 billion dollar) economic stimulus plan aimed at digging the bloc out of recession.

London's FTSE-100 closed down 2.47 percent, in Paris the CAC 40 was down 2.80 percent and the Frankfurt Dax lost 2.18 percent. Elsewhere in Europe, Milan shed 2.56 percent and Madrid tumbled 2.26 percent.

Tokyo's Nikkei index slumped by more than seven percent at one point as the dollar tumbled below the key 90-yen level for the first time since 1995.

The Japanese benchmark ended down 5.6 percent as exporters reeled from the stronger yen, which undercuts their overseas earnings.

Hong Kong shares closed down 5.48 percent, Seoul dived 4.38 percent and Sydney was off 2.4 percent.

Wall Street also opened lower with a flurry of negative news including the collapse of the auto rescue plan, weak economic data and fresh job cuts in the financial sector.

The Dow Jones Industrial Average tumbled 1.57 percent in morning trading, while the Nasdaq composite dropped 0.64 percent and the broad Standard & Poor's 500 fell 1.55 percent.

Charles Schwab & Co. analysts said the car rescue plan's collapse stoked "fears that a bankruptcy by one or more major firms could further exacerbate an already weak economy."

The market appeared to pare its losses after the White House said it was considering tapping into a 700-billion-dollar financial rescue fund to keep the auto industry alive.

The market also digested economic data showing a sputtering economy.

US retail sales fell for the fifth straight month in November, dipping 1.8 percent amid weak consumer sentiment and tight credit conditions in a deepening recession.

A separate report showed US wholesale prices fell 2.2 percent in November led by plunging energy prices, in the fourth straight month of decline.

The falling prices and weak spending raised concerns about a deep recession and deflation that will pressure the Federal Reserve to cut interest rates close to zero.

The dollar in turn fell sharply, hitting a 13-year low against the yen.

Japan meanwhile announced, after the close Friday, another major stimulus package worth 255 billion dollars to add to the 300 billion dollars already earmarked to get the world's second largest economy moving again.

Investors reacted cautiously earlier to reports about the impending announcement, noting that Prime Minister Taro Aso -- who unveiled a 26.9-trillion-yen boost in late October -- is struggling amid voter discontent with his handling of the economy.

Aso "is already a lame duck," said Hideaki Higashi, a strategist at SMBC Friend Securities, before the announcement. "We do not know how seriously we should believe the reported measures will be implemented."

The sharp drop on Asian markets wiped out several days of gains. Japan's Nikkei index is now down 46.5 percent in 2008 while Hong Kong's Hang Seng is off almost 48 percent.

Elsewhere in the Asia-Pacific Friday, Taipei ended down 3.7 percent, Wellington lost 1.8 percent and Manila dropped 2.0 percent.