Gov't pours billions into banks, but real economies tanking
WASHINGTON (AFP) – The US government said Monday it would plow 125 billion dollars into nine top banks this week under its huge bailout plan, as signs grew of the impact of the world financial crisis on real economies around the globe.
But a dismal forecast on US holiday retail sales and statistics showing housing prices continue to fall kept a damper on the US economy, and US stock markets see-sawed throughout the day before closing down.
The Dow Jones Industrial Average fell 2.49 percent to 8,170.51 just after the closing bell. The Nasdaq composite slid 2.97 percent to 1,505.90 and the broad-market Standard & Poor's 500 index lost 3.17 percent to 848.94.
The markets shrugged off the news that money was ready to flow from the government to capital-starved banks.
"We executed the agreements for the nine institutions late last night so the money will go out the door for these institutions early this week," Assistant US Treasury Secretary David Nason said Monday of the first tranche of 700 billion dollars the government has made available to help struggling banks.
Another 125 billion dollars will be made available for smaller banks under the capital-for-equity program, and Nason said the Treasury could weigh offering similar aid to ailing insurers.
"It is something we have to consider. We started with the banks ... but there are a lot of industries that are coming and saying they need federal assistance, so we are willing to listen."
Another small bit of good news also failed to spark the markets: that US new home sales showed a modest 2.7 percent rebound in September, according to government data.
But the same government figures showed prices continued to fall in new homes, and that sales were still off 33.1 percent from a year ago.
A survery of retailers forecast gloom for the coming November-December holiday season, meanwhile.
In the October BDO Seidman survey, chief marketing officers from top US retailers predicted a 2.7 percent fall in same-store sales for the season, and 88 percent said they were being very cautious with purchasing and inventory.
Elsewhere the news was similar. A UN regional commission warned Latin America it faces a drop in investments, remittances and demand for its raw material exports due to the global financial meltdown.
In Germany, Europe's number one economy, a new survey showed business confidence at its lowest point for more than five years.
"Germany is heading for a serious recession," warned Bank of America analyst Holger Schmiedling.
The European Central Bank sought to keep interbank money markets flowing with one-week dollar loans against euro cash.
ECB President Jean-Claude Trichet said another cut in the bank's key interest rate -- cut by 0.50 percent earlier this month -- was "possible" when its board meets next month.
The sharp rise in the Japanese yen left western industrial companies concerned even as the Tokyo stock market plunged to a 26-year low.
Japan's Nikkei index plunged 6.36 percent by the close Monday, hitting the lowest level since October 1982.
The G7 club of rich nations vowed to cooperate to stabilize the global financial system, and voiced concern about "excessive volatility" in the yen.
In Iceland Prime Minister Geir Haarde said he had asked his Nordic peers for much needed funds at a summit on the global financial crisis.
"We have put loan requests to all four Nordic (central) banks," Haarde told a press conference in the Finnish capital, where he and the prime ministers of Denmark, Finland, Norway and Sweden were discussing the turmoil.
"I am not ready to tell in detail what we have requested," he said, adding: "I do not want to put pressure on my colleagues."
The IMF unveiled aid packages for Ukraine and Hungary as well Monday, adding them to a growing list of smaller economies turning to its emergency facilities.
With markets still unsettled British Prime Minister Gordon Brown planned to hold talks on the financial crisis with French President Nicolas Sarkozy in Versailles outside Paris on Tuesday, Brown's office announced.
But elsewhere in Europe leaders looked to German Chancellor Angela Merkel to head opposition to Sarkozy's hands-on attempts to confront the financial crisis.
With fears the crisis could drive a wedge through Europe, Merkel is fronting resistance to a proposal by Sarkozy, who holds the rotating EU presidency, to create an "economic government" for the 15-nation eurozone.
In the foreign exchange markets, the euro dived under 1.24 dollars in early trading, hitting the lowest point for more than two years.