Mega slump for Asian stocks

Historic downgrade of US government debt rattles investors; markets extend last week's deep losses

Asian stocks slipped sharply today, witnessing a massive sell off as the investors came to the grip of the historic downgrade of US government debt. The global ratings agency Standard & Poor's cut the US rating to AA+ from the top-notch triple-A for the first time and unleashed a fresh wave of fear about the global economic recovery. The moderation in economic activity around the world in last few months and a persistent flight to safety have also taken sheen off equities.



Meanwhile, the European Central Bank also said yesterday that it will actively implement its bond-buying program, indicating it will likely buy Spanish and Italian government bonds in an effort to prevent sovereign-debt contagion taking hold in some of the region's largest economies. Earlier in the last week, Japan had also notified that it is on track to expand its bond buying programme. The US equities witnessed a volatile movement on Friday. The US non-farm payrolls jumped by 117,000 during July, slightly more than expected. The DOW added 60.93 points or 0.54% to close at 11444.60.

After the rating downgrade of the US, financial and monetary officials from the Group of Seven major economies released a statement late on Sunday, saying they were "committed to addressing the tensions stemming from the current challenges on our fiscal deficits, debt and growth, and welcome the decisive actions taken in the US and Europe." However, the statement failed to calm the investors and the markets in Asia started off on an utterly nervous note.

Japanese equities slumped, extending the recent rout as the downgrade of the United States' triple-A credit rating worried investors. A very strong run up in Japanese yen was already hurting the country's powerhouse export sector and the efforts to curb down the unrelenting rise are unlikely to bring in much of a result given the broad macro headwinds in the asset markets. The benchmark Nikkei 225 index dropped 202.32 points or 2.2% to close at 9097.56 points- its lowest level in nearly six months.

In Australia the markets dropped amid heavy selling in metal stocks. The markets had dropped sharply on Friday and the benchmark S&P/ASX 200 index closed down 119.3 points or 2.91% at 3986.10 today. Rio Tinto, the world's largest international mining groups settled with a loss of 4.70% to one year low. On the economic front, the flow of grim news continued as total number of job advertisements in Australian newspapers and on the internet during July fell 0.7% in seasonally adjusted terms when compared with June. Job advertisements have now declined for four months in a row.

In China, stocks were sent packing on global worries and the China's Shanghai Composite index recorded its largest single-day loss since November last year. China owns $1.2 trillion in U.S. bonds, the largest holding by any country and could be hit extremely hard in case any US debt default takes place in coming months. The benchmark index slumped 99.61 points or 3.79% to close at 2526.82 points.

In Mumbai, fresh selling during the last one hour of trade derailed a strong intraday rebound after a steep initial sell-off dragged the key benchmark indices to 14-month lows. Stocks fell across the globe as a downgrade of the US credit rating by Standard & Poor's on Friday led investors to reduce exposure to assets perceived as risky and escalated worries about global economic outlook. The barometer index, BSE Sensex regained the psychological 17,000 level after falling below that mark intermittently during the day. The Sensex was provisionally down 291.08 points or 1.68%, up 255.34 points from the day's low and off 233.08 points from the day's high. Intraday volatility was quite high.

In other markets, the Straits Times index in Singapore dropped 3.70%, Hong Kong's Hang Seng crashed 2.17%, South Korea's Kospi lost 3.82% while Taiwan's Taiwan Weighted tanked 3.82%. In commodities, Gold surged to a fresh record above $1700 as investors sought safety from falling markets across Asia following Standard & Poor's downgrade of a coveted AAA credit rating held by the US. Crude slipped though, following the grim movement in equities and quotes down nearly 3 dollars at $83.84 per barrel.