Monday December 15, 06:10 PM
World stocks fall amid scandal, uncertainty
LONDON (AFP) - European and US stock markets fell on Monday as a host of major global banks declared massive exposure to the worsening Madoff scandal and amid uncertainty about a plan to save the US car industry.
In London, the FTSE 100 index fell 0.07 to close at 4,277.56 points, in Paris the CAC 40 (Paris: news) was down 0.87 percent to 3,185.66 points, while the Frankfurt Dax lost 0.18 percent to close at 4,654.82.
"By the time the possible impact of the Madoff scandal is taken into account and the fact we're on course to see another panic rate cut from the Fed tomorrow it's no surprise that the FTSE 100 is back at last week's closing levels," said Paul Webb, chief dealer at CMC Markets.
On Wall Street, the Dow Jones Industrial Average fell 1.12 percent to 8,533.39 in midday trade while the Nasdaq composite (NASDAQ: news) was down 2.38 percent to 1,504.08.
The broad Standard & Poor's 500 also dropped 1.43 percent to 867.11.
Federal Reserve policymakers opened a two-day meeting Monday widely expected to take unprecedented action to cut key rates to near zero in the latest effort to battle a crippling credit crunch.
Yet analysts say low rates have so far failed to spark economic activity and that the central bank headed by Ben Bernanke will likely look at a range of exceptional actions to get credit flowing again.
Asian stock prices had rebounded sharply earlier Monday, with Tokyo up 5.21 percent and Hong Kong 2.0 percent higher, but optimism about the US auto sector faded later in the day.
"Investors continue to have lots of questions regarding the economy, which seems to impede their willingness to commit funds into a stock market that appears significantly undervalued," said Fred Dickson at US brokerage DA Davidson & Co.
"They are confused over the state of the credit crisis, wondering why the infusion of several trillion dollars in liquidity from the Fed hasn't noticeably helped jump start the economy.
"Investors are also confused regarding the long-term implications of the proposed auto rescue plan and as to why short-term interest rates have fallen to close to a zero yield."
The financial sector worldwide was rattled by fall-out from the alleged fraud committed by New York investment manager Bernard Madoff.
Top banks in Europe and Asia revealed on Monday they could lose billions of dollars in a massive alleged pyramid investment fraud scam run by Madoff.
British, French, Japanese, South Korean and Spanish banks were among the worst affected, with HSBC (LSE: HSBA.L - news) saying it had exposure of up to one billion US dollars (740 million euros).
Its shares closed down by 1.23 percent at 724 pence
Shares in Santander (Madrid: SAN.MC - news) , the biggest bank in Spain and the second-largest in Europe after HSBC, plunged after the lender said it had an exposure of more than three billion dollars.
They later recovered to 6.54 euros.
Madoff, 70, a former chairman of the US Nasdaq stock market, was arrested on Thursday and is alleged by US prosecutors to have confessed to having defrauded investors of 50 billion dollars in the giant pyramid scheme.
In France, the Paris market was hit after investment bank Natixis (Paris: FR0000120685 - news) and retail banking giant BNP Paribas (Paris: FR0000131104 - news) said the pair could lose a total of 800 million euros.
BNP Paribas saw its share price spiral 10.05 percent lower to 39.40 euros, while those of Natixis fell 3.38 percent to 1.43 euros.
In Asia, Japanese financial giant Nomura said it could lose up to 303 million dollars and officials said South Korean financial institutions including an insurer and six asset management firms had a total exposure of 95.1 million dollars.
However, Japan's Nikkei index (news) surged 5.21 percent on Monday, while Seoul's KOSPI index added 4.9 percent, after Washington suggested it would help Detroit by tapping into a 700 billion-dollar bailout initially aimed at the financial industry.
The announcement had triggered surprise gains on Wall Street before the weekend, reversing earlier weakness that sent global indexes into a collective tailspin.
US President George W. Bush said on the way from Iraq to Afghanistan that an agreement on how to remedy the carmakers' plight was not imminent, however.
"We're now in the process of working through with the stakeholders a way forward, and we're not quite ready to announce that yet," he told reporters aboard Air Force One.
He added that "this will not be a long process because of the economic -- the fragility of the autos."
The president's remarks came as lawmakers warned that time was running out for the auto giants, and traded blame with auto union chiefs over the collapse last week in the Senate of a short-term rescue bill.
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