Friday December 12, 08:04 AM
Markets tumble as US auto bailout collapses
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WASHINGTON (AFP) - Marathon negotiations collapsed in the US Senate on a plan to rescue automakers on the brink of bankruptcy, battering Asian stock markets and sending the dollar to a 13-year low Friday.
The European Union was also divided on a proposed stimulus package as bad economic news kept mounting, with Bank of America (NYSE: IKJ - news) slashing up to 35,000 jobs to weather the worst financial crisis since the Great Depression.
Hours of late-night negotiations among US senators on salvaging Detroit's Big Three collapsed late Thursday, despite news that General Motors (NYSE: GM - news) had hired lawyers for a potential bankruptcy filing.
"Millions of Americans, not only the auto workers but people who sell cars, car dealerships, people who work on cars are going to be directly impacted and affected," said Senate Majority Leader Harry Reid, a member of president-elect Barack Obama's Democratic Party.
"I dread looking at Wall Street tomorrow. It's not going to be a pleasant sight," he said.
In a preview, Asian stock markets went into freefall on Friday.
Tokyo's Nikkei index (news) slumped by more than seven percent at one point before ending down 5.6 percent. Hong Kong was down nearly six percent in late trade.
Automakers' shares were particularly hard hit, with Toyota Motor Corp (Frankfurt: 853510 - news) . sliding by more than 10 percent in Tokyo.
The dollar tumbled below the key 90 yen level for the first time since 1995, raising fears for the profits of Japanese companies.
A 14-billion-dollar deal passed the House of Representatives this week but it faced stiff opposition from senators in President George W. Bush's Republican Party.
The Republicans had clashed with the US automakers' union by demanding that wages from the Big Three be brought in line next year with those paid by foreign firms, whose US plants are usually not unionised.
Some also opposed the deal out of principle, saying it would effectively nationalise one of the country's top private industries.
The plan would provide GM and Chrysler loans to operate until March 31 and in turn force them to craft major restructuring plans that include paying off the government aid. The third US auto giant, Ford Motor Co., says it faces no immediate credit crisis.
Bush and Obama both warned that the US economy could not afford more sweeping job losses.
"We cannot simply stand by and watch this industry collapse. Doing so would lead to a devastating ripple effect throughout our economy," Obama said in Chicago.
The layoffs by the Bank of America were only the latest by major companies. US banking giant Citigroup (NYSE: C - news) last month said it was cutting a near-record 50,000 jobs worldwide.
In Brussels, European Union leaders were set to open a second and final day of a crunch summit on a 200-billion-euro (260-billion-dollar) stimulus package to fight the region's recession. They were also discussing action on climate change.
The summit opened Thursday on a sour note as German Finance Minister Peer Steinbruck blasted Britain for borrowing money to finance state spending and denounced the idea of "tossing around billions" of euros.
British Prime Minister Gordon Brown rejected the criticism. Brown and French President Nicolas Sarkozy, the EU's outgoing chair, both urged Germany -- Europe's largest economy -- to boost domestic consumption, but Berlin has refused to indulge in borrowing and deficit spending.
The leaders of Japan, China and South Korea were due to hold their own rare three-way summit Saturday on the financial crisis.
On the eve of the summit, South Korea -- whose won unit has come under severe selling pressure due to the market turmoil -- announced currency swaps totalling almost 45 billion dollars with China and Japan.
Japan was also reportedly set Friday to raise its stimulus package to 40 trillion yen (437 billion dollars) from 26.9 trillion yen as the outlook rapidly worsens in Asia's largest economy.
Japan's Sharp Corp . said it was cutting 380 domestic jobs due to the economic downturn, days after Sony Corp (Munich: 853687 - news) . said it was slashing more than 8,000 regular jobs and the same number of temporary or contract posts.
Japan's parliament also approved a law Friday allowing the government to pump public funds into banks. The United States and European nations have already injected billions of dollars into financial institutions.
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