Asia's Financial Markets Sell Off as Central Banks Rush to Calm Fears

Leading central banks have rushed to add more cash to the world's financial system in an effort to calm nervous international markets. As Ron Corben in Bangkok reports, most Asian stock markets fell again Thursday, as investors continued to react to turmoil on Wall Street, although the sell-off slowed late in the day. The central banks of the United States, Britain, Japan, the European Union and other nations are pumping more than $180 billion into the world's banking system. The money is intended to increase the cash available to lenders and borrowers and ease the credit crunch that has sent stock and bond markets reeling this week.

The announcement Wednesday appeared to soothe some investors. In late Asia trading, some of the steep losses seen early in the day were erased. Hong Kong's Hang Seng index, which had fallen more than seven percent at midday, ended nearly unchanged.

Still, most Asian markets lost ground. Japan's Nikkei average closed down more than two percent, at a three-year low, with a similar decline in share prices in South Korea and Australia.

Investors fear more problems ahead in US financial industry

Investors in Asia fear further problems in the U.S. financial industry despite the government's $85 billion loan to rescue insurance company AIG. Investors also are rattled by the collapse of the investment bank Lehman Brothers and reports that more U.S. banks may be in trouble.

Arporn Chewakrengkai is the chief economist at Thailand's Government Pension Fund. She thinks many Asian banks could be owed money by troubled U.S. banks.

"I believe that several Asian banks will have an impact from the fall of those big banks [in the United States]. So I think the stock markets in the region are still going to deteriorate further," he said.

The fall in global share markets has wiped off more than $19 trillion in value since a peak was reached in late October last year.

Arporn says that means the region will see slower growth because there will be less money available for businesses to borrow to expand.

What caused crisis?

The crisis was caused by the most severe U.S. housing recession since the 1930s, which led to a credit shortage as thousands of homeowners fell behind on their mortgage payments.

Graham Catterwell is a business consultant and former banker in Bangkok. Like many market analysts around the world, he says part of the problem lies in loosely regulated financial markets and the U.S. budget and trade deficit. A recovery, he says, could be two years away.

"Some people are panicking but there have been imbalances building up over quite a few years - building up without people noticing quite often and unwinding in ways people did not expect," he noted.

Many economists expect to see further restructuring of the financial industry, with more companies looking to mergers and takeovers to remain solvent.