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Rejected bailout drags down stocks in Asean

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September 30, 2008

US Financial Crisis:
Rejected bailout drags down stocks in Asean

The US lawmakers’ shock rejection of a $700 billion effort to end financial panic saw Asian stocks drop sharply and the yen hit a 4-month high on Tuesday while it triggered the biggest fall in the US S&P 500 since the 1987 stock market crash, reported Reuters.

In Thailand, stocks are set to fall sharply on Tuesday after US lawmakers rejected a financial sector bailout bill.

"I expect at least a 3-3.5 percent drop at the opening," UoB KayHian Securities analyst Kosin Sripaiboon said. "Our market will take a pretty hard hit from a sharp drop in oil prices, which is going to weigh on energy shares," he added.

On Monday, the benchmark SET index fell 2.86 percent to a one-week low of 601.29, largely due to weakness in banks and energy big caps. Turnover was thin at 10 billion baht ($293 million).

Singapore fell 2.08 percent to its lowest since September 18, Malaysia edged down 0.08 percent to its lowest close since Sept. 18, Indonesia dropped 0.74 percent and Vietnam closed 0.99 percent lower. The Philippines, which bucked the trend, was up 0.4 percent.

"Tighter funding conditions caused by liquidity shocks from the US credit turmoil have become more widespread within Asia," Citigroup said in a research note.

"Liquidity strains have broadened out beyond Korea to the region's financial hubs judging from the rise in money market rates in Hong Kong and Singapore," it said.
The failure of Washington’s biggest and most comprehensive bid to keep the financial sector shockwaves from tearing up the real economy accelerated a move by investors from perceived risky assets to more stable holdings and even plain cash.

"Those voting against it saw, like me, that there's no kind cure for excessive leverage," Reuters quoted Brett Williams, credit analyst with BNP Paribas in Hong Kong, as saying.

"A modified bill may likely be represented for another vote, in an effort to save some face, but better to brace for violent price swings in all asset classes," he said in a note.

Investors around the world have been scrambling to eliminate any risk in their portfolios, loading up on traditional safe harbours in times of extreme volatility like short-term US government debt and gold.

The US House of Representatives voted 228-205 against a compromise bailout plan that would have allowed the Treasury Department to buy up illiquid assets from struggling banks.

House Republicans, in particular, balked at spending so much taxpayer money just before the November 4 presidential election.

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