US bailout rejected, markets in turmoil

30 Sep 2008, 5:35 am   -   Source: AAP
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Australian stocks have opened sharply lower this morning, after Wall Street stocks suffered their worst single-day loss overnight in reaction to the rejection by US lawmakers of a $US700-billion financial rescue package.

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Australian stocks have opened sharply lower this morning, after Wall Street stocks suffered their worst single-day loss overnight in reaction to the rejection by US lawmakers of a $US700-billion financial rescue package.

Australian shares opened 2 per cent lower this morning, while Japanese stocks also tumbled 1.5 per cent in opening trade.  In the first 20 minutes of trade, the ASX had fallen more than 5 per cent as investors remained jittery.

Overnight the Dow Jones Industrial Average sank 770.59 points (6.92) percent to 10,372.54 after the closing bell in the worst single-day point decline ever, based on provisional data at the close of trade.

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The slide eclipsed a 684-point drop on September 17, 2001, when the markets reopened following the September 11 terror attacks.

The market bloodbath sent the Nasdaq down 199.61 points (9.14 percent) to 1,983.73 and the broad-market Standard & Poor's 500 index lower by 104.39 points (8.64 percent) to a preliminary close of 1,108.22.

Bailout plan thrown out

Markets went into panic after the House of Representatives rejected a fragile compromise plan to spend up to 700 billion US dollars to revive a financial sector weakened by a US housing meltdown.

"The important question is whether the system can save itself before the (Dow) moves toward 9,000," said Douglas McIntyre at 24/7 Wall Street. "That would wipe out over five years in gains."

Crude oil plunged more than 10 dollars a barrel as investors scrambled in the face of panicked markets.

New York's main contract, light sweet crude for November delivery, tumbled 10.52 dollars a barrel to close at 96.37 dollars.

"It is unclear what the next step will be. It took days of painstaking negotiations to put together the deal, and congressional leaders and administration officials may have to go back to the drawing board," said Augustine Faucher at Economy.com.

"The US is looking at a severe recession if Congress fails to pass some sort of package."

Wall Street found further reason for worry overseas. Three European governments agreed to inject Fortis NV with a $US16.4 billion ($A19.8 billion) bail out. Fortis, with has headquarters in Brussels, Belgium and Utrecht, Netherlands, is Belgium's largest retail bank.

The British government, meanwhile, said it is nationalising mortgage lender Bradford & Bingley, which has a $US91 billion ($A110 billion) mortgage and loan portfolio. It was the latest sign that the credit crisis has spread beyond the US.

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