“Big Bang” In Asian Markets

Hang Seng, Shanghai Lead The Regional Fall

The stock markets across the Asian region closed sharply lower, led by financial stocks, after Lehman Brothers reported larger-than-expected loss for its third quarter and said that it intends to sell a majority stake in its coveted investment management division, including its Neuberger Berman business. On Wall Street, the major averages pared some of their gains in the final hour of trading, but they still closed firmly in positive territory. The Dow closed up 38.19 points or 0.3% at 11,268.92, the Nasdaq closed up 18.89 points or 0.9% at 2,228.70. The S&P 500 rose 1.6% with one hour left in the session, but settled with a gain of 7.53 points or 0.6% at 1,232.04 following a late surge in broad-based selling interest.

Oil futures traded lower, as The New York Times reported that Saudi Arabia has given private signals that it won't honor the production quota drop agreed in Vienna. Crude fell 75 cents to $101.83 a barrel

On the currency front, the U.S. dollar traded in the mid 107-yen levels in late Tokyo deals. The dollar was quoted at 107.34-107.36 yen, up 0.17 yen from Wednesday's close of 107.17-18 yen in Tokyo. The dollar strengthened following the recent fall in oil prices and a rise in the U.S. stock market, though it initially faced selling pressure, as the earnings projection of major U.S. investment bank Lehman Brothers Holdings was worse than market expected.

In South Korea, the dollar opened weaker at 1,090.5 won, but bounced back to finish the session at 1,109.5 won after the central bank froze its key interest rate for September. The dollar closed Wednesday's session at 1,095.5 won.

The Australian dollar closed below the US$0.80 mark for the first time in more than a year as a surprise drop in the jobless rate failed to give the currency a sustained boost. A bigger than expected interest rate cut in New Zealand also dented sentiment. The Aussie closed the local session at US$0.7954-0.7957, down from Wednesday's close of US$0.8075-0.8079, marking the third successive weaker finish.

The New Zealand dollar plunged against the U.S. dollar after the central bank cut its interest rate by 50 basis points. In late local trades, the kiwi was buying US$0.6515, down from US$0.6650 in early trade and US$0.6695 late Wednesday.

Coming back in equities, the Japanese stock market closed sharply lower, extending losses for a third consecutive trading session. The benchmark Nikkei 225 index closed down 1.98% at 12,102.50, a six-month low, and the broader Topix index of all First Section issues on the Tokyo Stock Exchange lost 2.49% to finish at 1,162.72.

On the economic front, the Japan Machine Tool Builders Association or JMTBA said that Japan's core machinery orders were down a seasonally adjusted 3.9% in July, falling for the second straight month. However, the decline was slightly better than analysts' expectations for a monthly decline of 4.0%. In June, core machinery orders fell 2.6%. On an annual basis, core machinery orders fell 4.7%.

The Chinese stock market closed sharply lower, led by financial stocks, ending a two-day winning streak. Investor sentiment was dented after U.S. investment bank Lehman Brothers unveiled a restructuring plan following a $3.9 billion loss in the third quarter. Developers also fell sharply and resource stocks struggled on worries over slowing demand. The benchmark Shanghai Composite Index fell 3.34% to close at a 21-month low of 2,078.98. The Shenzhen composite index plunged by 2.21% to 575.32.

The Hang Seng Index recently dropped 3.4% to 19,321.60, taking losses into a third session. Earlier in the day, the index dropped as low as 19,282.54, a level it hasn't seen since March 2007. The Hang Seng China Enterprises Index tumbled 5.5% to 9,912.99, dropping below the psychologically important 10,000-point level for the first time since May.

The Australian stock market closed sharply lower, extending losses for a third consecutive trading session. The benchmark S&P/ASX 200 index closed down 1.9% at 4,814.3 and the broader All Ordinaries index lost 1.8% to finish at 4,871.5.

On the economic front, the employment picture in Australia improved in August. Data released by the Australian Bureau of Statistics showed the total number of employed Australians increased by 14,600 in August to 10,734,900. Meanwhile, the unemployment rate decreased 0.2% to 4.1%. The number of unemployed Australians decreased by 22,900 in the month, to 457,300.

The Westpac/Melbourne Institute consumer inflation expectation index declined 4.4% in September. The consumer inflation expectation reading for August was 4.9%. Australia's official annual inflation rate was 4.5% in the second quarter.

The New Zealand stock market closed lower for the second straight trading session. After trading in positive territory for the most part of the session, following the Reserve Bank of New Zealand's decision to cut its key interest rate by a larger than expected half a percentage point, the market lost ground in late trading due to the weakness in other markets in the region. The benchmark NZX 50 index closed down 0.31% to 3,333.54 and the broader NZX All Capital index lost 0.23% to finish at 3,367.50.

The Reserve Bank of New Zealand reduced its Official Cash Rate by a greater-than-expected 50 basis points to 7.50% from 8.0% on Thursday in an effort to stimulate a struggling economy. While trimming the rate by 25 basis points in its July 23 meeting the bank had signaled that additional rate cuts were coming. The bank said it sees the threat of inflation as diminishing in the foreseeable future, warranting the looser monetary policy.

On the economic front, food prices in New Zealand rose at the fastest rate in nearly twenty years last month. Statistics New Zealand reported that the August Food Price Index increased 2.7%, the largest one-month jump since July 1989. Higher prices for fruits and vegetables were the biggest contributor, although increases were seen in all five sub-groups. For the full year to August 2008, food prices were up 10.6%, the largest annualized increase since the year to May 1990.

Meanwhile, manufacturing activity in New Zealand contracted in August to its lowest level in two-and-a-half years. The Bank of New Zealand /Business New Zealand Performance of Manufacturing Index declined 3.1 points last month to a reading of 48.8. The August reading was the fourth straight result below the 50.0 mark, the worst performance period for the manufacturing sector in nearly three years. A reading below 50.0 indicates contraction in the sector.

The South Korean market closed lower after a volatile trading session. The central bank's decision to leave its key interest rate for September unchanged at 5.25% did not impact the market much, but investors dumped most blue chips on concerns over fluctuations due to the expiration of futures and options contracts. The benchmark Korea Composite Stock Price Index or Kospi closed down 1.48% at 1,443.24 after rebounding yesterday to finish 0.7% higher at 1,464.98.

The Bank of Korea froze the benchmark 7-day repurchase agreement rate at a nearly 8-year high of 5.25%, as widely expected. The central bank raised the key rate by a quarter percentage point in August to control spiraling inflation, the first increase in a year.

In India, the bearish sentiment prevailed on the bourses, on weak global markets. The BSE 30-share Sensex provisionally ended down 334.88 points. The market extended losses for the third day in a row. The BSE 30-share Sensex provisionally ended down 334.88 points or 2.28% to 14,327.73. At the day’s low of 14,265.38 hit in late trade, the Sensex fell 397.23 points. At the day’s high of 14,557.33 hit in early trade, the Sensex fell 105.28 points. The S&P CNX Nifty slipped 112.3 points or 2.55% to 4,287.95 as per the provisional figures.

Elsewhere, Taiwan's Taiex closed down 3.2% at 6,251; Singapore's Strait Times fell 3.1% to 2,541.15; Indonesia's Jakarta Composite index shed 0.79% to 1,870.13; Malaysia's KLCI closed down 2.01% at 1,041.07.

In the other part of the world, European shares traded flat-to-lower, with another downbeat performance from financial stocks keeping gains for oil producers and miners in check

Of national indexes, the German DAX 30 index declined 0.2% to 6,169.97, and the French CAC-40 index dipped 0.1% to 4,280.35. The U.K. FTSE 100 index edged up by 0.2% to 5,375.30. At 12.23 GMT all this national indices continued with their negative positions as U.K. FTSE 100 index was down by 0.88% to 5,319. The German DAX 30 index was down by 1.16% to 6,138.02, while the French CAC-40 index was up by 0.85% to 4,247.28.

On the economic front, Spanish annual inflation in August eased back from a 15-year high in July as international oil prices fell. According to Spain's National Statistics Institute, or INE, August annual inflation stood at 4.9%, down from 5.3% in July. On a monthly basis, August consumer price inflation fell by 0.2% after a 0.5% fall in July.

The same trend was seen in Hungary as annual headline consumer price inflation decelerated from a month earlier in August, as a decline in food and fuel prices offset the impact of higher household energy prices. Headline consumer prices fell 0.3% on the month and were up 6.5% on the year in August. Inflation accelerated to 6.8% in the first eight months of 2008 from a year earlier. Annual core inflation, an indicator watched closely by the central bank to assess underlying inflationary pressures, remained unchanged at 5.8% in August from July.

In Sweden, the unemployment rate fell to 5.2% in August from 5.8% the previous month. The SCB said total employment fell to 4.685 million people from 4.798 million the previous month. The number of hours averaged 114.8 million per week, down 4.2 percent from a year earlier.

Looking ahead the economic calendar is scheduled to release weekly data of Jobless claims from US which will be followed by the import price index. From Canada we will analyze a data on international merchandise trade balance for the month of July, which will be accompanied by new housing price index for the month of July. At the same time US will release its data on trade balance. In the late evening we have retail sales data from Canada while Japan will release its second quarter economic growth rate.