World markets tumble on Lehman news

Emma Vandore , The Associated Press , Paris Mon, 09/15/2008 6:45 PM Business A feverish sell-off in Europe turned markets sharply lower on Monday after the double-fisted blow from Wall Street news that Lehman Brothers had filed for bankruptcy and Merrill Lynch would be sold to Bank of America.European benchmarks were punished following sharp losses across Asia: the FTSE-100 share index was down 3.37 percent in London, the Paris CAC-40 was off 4.47 percent and Germany's DAX 30 index of blue chips sagged 3.18 percent.The falls were led by insurance and financial stocks, with shares in French insurer AXA SA down 9.6 percent, Germany's Commerzbank AG falling 6.5 percent, and Swiss bank UBS AG down 6.7 percent at euro197.57 ($277.90).Britain's Barclays, which had considered a combination with Lehman Brothers but walked away, was down 10.1 percent."We will have a shakeout today and there will probably be more damage in the afternoon when the U.S. gets going," said Stephen Pope, chief global market strategist at Cantor Fitzgerald Europe in London.Europe's major central banks moved quickly to calm markets Monday, pumping billions of euros and pounds into the financial system. The European Central Bank loaned euro30 billion but said it received 51 bids for euro90.3 billion (US$127 billion) on its one-day tender with a bid rate of 4.25 percent - a clear sign that demand for cash is over the top.Similarly, the Bank of England offered up 5 billion pounds (nearly US$9 billion, euro6.4 billion) in a three-day auction - but bids were nearly five times higher, at 24.1 billion pounds. (euro30.4 billion; US$43 billion)The Zurich-based Swiss National Bank said it was also providing liquidity in "a generous and flexible manner" at an overnight rate of 1.9 percent, but wouldn't say how much was on offer.Speaking at an awards ceremony at Frankfurt city hall, ECB President Jean-Claude Trichet said policymakers must be "extraordinarily alert" for jitters in financial markets, spooked by the credit turmoil that stems from now-toxic subprime mortgage debt."It is an ongoing market correction with episodes of high level of volatility, it is what we have experienced since now a long period of time and is going on," he said.The 158-year-old Lehman Brothers Holdings Inc. filed Monday for Chapter 11 bankruptcy. The company was crippled by US$60 billion (euro43 billion) in soured real-estate holdings and unable to find an investment partner to throw it a lifeline.Officials from the government and various banks failed to find a solution during weekend meetings. During the talks, when Bank of America balked at buying Lehman, the government urged it to buy investment bank Merrill Lynch instead. The US$50 billion (euro36 billion) deal stops speculators whose next target after Lehman would have been Merrill, Cantor Fitzgerald's Pope said.The moves will create a "firebreak in the financial structure," and once disappointment that Lehman didn't manage to make a deal has been digested, stocks will start to recover, he said."You are going to have a torrid day today, probably tomorrow as well, but then I think people are going to start thinking there's some opportunity out there to be engaged," he said.Before that, markets also have to react to a possible restructuring of the world's largest insurance company, American International Group Inc. The company said Sunday it is discussing options with outside parties to improve its business. The Wall Street Journal said on its Web site Sunday that AIG may announce a turnaround plan Monday that would involve selling assets such as its aircraft leasing business.A global consortium of banks, meanwhile, announced late Sunday a US$70 billion (euro49.77 billion) pool of funds to lend to ailing financial companies, a move geared toward preventing a worldwide panic on stock and other financial exchanges. The U.S. Federal Reserve chipped in with more largesse in its emergency lending program for investment banks.The dollar declined against euro, which rose to US$1.4241 from US$1.4215 late Friday in New York. The pound rose against the dollar, to US$1.7948 from US$1.7937.Crude oil for October delivery was trading down more than US$4 to as low as US$96.31 a barrel on the NYMEX Web site Monday morning. It is the lowest the price has been since February this year.Asia's biggest stock exchanges in Japan, Hong Kong and South Korea were closed for holidays, but every market open closed deep in the red.India's Sensex tumbled 3.4 percent, Taiwan's benchmark plummeted 4.1 percent and Singapore dropped 3.2 percent.Macquarie Group Ltd., Australia's largest investment bank, plummeted 10.3 percent. In Taiwan, Shin Kong Financial Holding lost 6.9 percent.But there could be more turmoil to come when the U.S. wakes up. Aurelio Maccario an economist with UniCredit in Milan said the reaction in Europe and Asia has been more contained than it could have been."Everyone is waiting for the U.S. markets to open, let's see how the day unfolds," he said