Asian Stocks Plunge after US Lawmakers Reject Bailout

By YURI KAGEYAMA / AP WRITER

TOKYO — Asia was shaken Tuesday by the collapse of the US financial bailout effort, with the region's political leaders expressing hopes for a quick solution and Japan's central bank injecting more cash into money markets to promote liquidity and lending.

"This is a bad development," Australian Prime Minister Kevin Rudd said of the U.S. House of Representatives' rejection Monday of a US $700 billion plan to rescue ailing financial companies burdened with piles of bad mortgage-related debts.

"The outcome has caused a major impact not only the US economy but also the world economy," said Japan's Economy and Fiscal Policy Minister Kaoru Yosano, urging Washington to renegotiate a workable package.

The bailout plan, defeated by a vote of 228-205, is aimed at preventing a possible collapse in the US financial system, which would have dramatic repercussions for Asia and the entire global economy.

While few Asian financial companies have been hurt badly by the credit crisis, the fallout could spread, and a recession in the US would batter Asia's export-oriented economies.

Jitters about the crisis were evident last week in Hong Kong when hundreds of customers descended on branches of Bank of East Asia to withdraw their money amid rumors spread by cell phone text messages that questioned the bank's stability. The bank and authorities called the rumors baseless, and the bank run subsided after a day or two.

On Tuesday, reports in India that depositors were beginning to pull out their money from the nation's largest private bank, ICICI Bank Ltd., promoted the Reserve Bank of India to reassure the jittery public about adequate cash reserves.

"The Reserve Bank of India is monitoring the developments and has arranged to provide adequate cash to ICICI Bank to meet the demands of its customers at its branches and ATMs," the central bank said in a statement.

The Bank of Japan pumped another 3 trillion yen (US$28.7 billion) into money markets Tuesday as part of the coordinated effort of the world's central banks to boost liquidity and lending. Since the collapse of US investment bank Lehman Brothers earlier this month, the BOJ has injected 21 trillion yen ($200 billion) into markets.

News of the bailout rejection sent many Asian stock markets plunging. Japan's Nikkei 225 sank more than 4 percent, but Hong Kong's key index reversed its early slide to close 0.8 percent higher.

On Monday, the Dow Jones industrial average slid 777 points—it's biggest point drop ever—or nearly 7 percent, to 10,365.45.

In Washington, congressional leaders and officials scrambled to restructure the bailout proposal so that it would attract the support needed to pass.

Hong Kong's de facto central bank called for calm while highlighting the gravity of the situation.

"When the rescue plan remains uncertain, finances of financial institutions also remain doubtful," said Joseph Yam, chief executive of the Hong Kong Monetary Authority.

Later in the day, Hong Kong's financial chief John Tsang said the authority will introduce a series of temporary measures, effective Thursday, to provide more liquidity in the banking system to quell worries about credit tightening and liquidity shortage.

Philippine President Gloria Macapagal Arroyo expressed hopes for another vote soon in the US House to allow the bailout to pass.

"That just goes to show that this is really a time of global economic uncertainty," she said. "I know that these global forces are causing real difficulties for countries around the world so we in the Philippines have been working hard on all fronts."

Her nation is trying to control inflation and help people hit by the global financial woes, she said.

Nestor Espenilla Jr, deputy governor of the Bangko Sentral ng Pilipinas, said the worries were more about the overall dangers to the nation's economy, rather than direct exposure Philippine banks had to the U.S. financial woes.

"First, we only have a very limited amount of exposure, and, second, we continue to have high levels of liquidity," he said.

Thailand's Prime Minister Somchai Wongsawat told investors to stay calm.

"The impact of the global financial turmoil on our economy will be limited," he said. "We can still cope with the situation but we have to warn investors not to be alarmed."

Chinese financial markets were closed for the week for national holidays and so the central bank made no official comment.

New Zealand Finance Minister Michael Cullen said he expects the U.S. House of Representatives to eventually agree on a financial bailout package because of the dire consequences if they fail to do so.

Cullen told New Zealand's National Radio that he was surprised the package was turned down as credit markets were drying up and would continue to do so without a bailout.

"At the end of the day, it's hard to believe that the lower house won't approve some sort of package," he said.