By Jeremy Gaunt, European Investment Correspondent
LONDON, March 17 (Reuters) - Global stocks sank and the
dollar tumbled on Monday as a fire sale of Bear Stearns and a
Federal Reserve emergency cut of a key lending rate sparked
fears that worldwide credit crisis will claim more casualties.
European shares opened nearly 3 percent lower following a
sell-off in Japan where the leading index shed more than 3.5
percent.
The dollar hit new lows against the euro and a basket six of
major currencies. Oil hit a new high of nearly $112 a barrel on
the weaker dollar.
Investors dived into safe haven assets, lifting gold to more
than $1,030 an ounce at one point and sending yields on
short-dated euro zone debt below 3 percent for the first time in
more than two years.
"The markets are in a complete state of panic and in such
situations there is no such thing as valuation or value in any
asset," said Michael Klawitter, FX strategis at Dresdner
Kleinwort in Frankfurt.
In an unexpected move late on Sunday, the Fed lowered the
discount rate it charges on direct loans to banks to 3.25
percent from 3.50 percent and implemented steps to provide cash
to a wider range of financial firms, using tools last used in
the Great Depression.
Minutes earlier, JPMorgan Chase & Co <JPM.N> had said it
would buy Bear Stearns <BSC.N> for a rock-bottom price of $2 a
share, valuing the U.S. investment bank at the centre of a
widening global credit crisis at about $236 million.
JPMorgan and the Federal Reserve Bank of New York
temporarily bailed out Bear Stearns on Friday after a
deterioration in the latter's liquidity, one the worst cases yet
in a broad-based drying up that has been going on since
mid-2007.
Investors are now nearly fully pricing in a 1 percentage
point cut in the main federal funds rate at or before the Fed's
policy meeting on Tuesday.
"Desperate times need desperate measures. The Federal
Reserve is doing what it takes to restore stability," said Craig
James, chief equities economist at Commesec in Sydney.
STOCKS, DOLLAR DOWN SHARPLY
Equity markets took a hefty hit across the world as
uncertainty grabbed hold of investors.
European shares tumbled in early trade. The FTSEurofirst 300
<> was down 2.9 percent.
Earlier, Japanese stocks fell to about a 2-1/2 year closing
low, dragged down by exporters worried about a rising yen.
The benchmark Nikkei average <> fell 3.7 percent or
454.09 points to end at 11,787.51, its lowest finish since Aug.
8, 2005.
The broader TOPIX index <> shed 3.7 percent or 43.58
points to 1,149.65, the lowest close since June 2005.
The dollar plunged across the board.
It slid as much as 3 percent in early Monday trading to
as low as 95.77 yen according to Reuters data <JPY=>, the lowest
since 1995, and set fresh all-time lows at 0.9637 Swiss francs
<CHF=>.
It later recovered slightly to 97.21 yen and 0.9825 Swiss
franc.
The euro <EUR=> soared as high as a new record $1.5904
before dropping back to $1.5788.
The weak dollar drove oil prices higher. Crude for April
delivery <CLc1> was up $1.10 at $111.31 a barrel, off a record
$111.80 hit earlier.
SEEKING SAFETY
Investors dived into safer assets. Spot gold <XAU=> hit
$1,030 an ounce, before falling back to around $1,023 an ounce.
"Gold will be the main beneficiary (of the falling dollar)
as a hedge against global risk," said Australia & New Zealand
Bank senior commodities analyst Mark Pervan.
When the U.S. currency falls, the price of gold, like that
of oil, tends to rise as investors with dollars buy it to lock
in value and non-dollar investors find it cheaper.
Investors also bought bonds. Short-dated euro zone
government bond yields were at their lowest in over two years
and implied rates down.
The two-year cash yield fell 8 basis points to 2.984 percent
<EU2YT=RR>, its lowest since early 2006 while the 10-year Bund
yield was down 3 basis points at 3.696.
(Additional reporting by Rafael Nam and Toni Vorobyova)
