Failed Bailout Batters Asian Stock Markets

Asian markets plunged Friday after a proposed U.S. government rescue of Detroit's ailing automakers collapsed in the Senate, intensifying fears about a protracted global slump.

More dire economic data from the U.S. - a vital export market - and news of deep job cuts at Bank of America also added to the gloom.

Japan's Nikkei 225 stock average tumbled 484.68 points, or 5.6 percent, to 8,235.87, and Hong Kong's Hang Seng index slid 5.9 percent to 14,692.79. South Korea's Kospi fell 4.4 percent.

The dollar sank to a 13-year low against the yen, dropping as low as 88.16 yen, and oil fell below $46 a barrel.

Global investors were rattled after a $14 billion bailout for Detroit's struggling Big Three automakers failed to get approval in the U.S. Senate. The collapse came after bipartisan talks on the auto rescue broke down over Republican demands that the United Auto Workers union agree to steep wage cuts by 2009 to bring their pay into line with U.S. plants of Japanese carmakers.

The bankruptcy of any of the big American automakers would deal another blow to the world's largest economy, already in recession, and ripple through export-dependent Asia, as well as global financial markets.

"The automobile sector is a fundamental industry for both the U.S. and Japan, and a failure would be a major blow to Japan as well," said Nagayuki Yamagishi, a strategist at Mitsubishi UFJ Securities in Tokyo. "The bailout failure is just the beginning."

U.S. stock index futures pointed to a sell-off Friday on Wall Street. Dow Jones industrial index futures were down 286 points, or 3.3 percent, at 8,311 and S&P 500 futures slid 37.30 points, or 4.3 percent, to 837.20.

Hopes for the U.S. auto industry now appear to rest with President Bush agreeing to tap a $700 billion Wall Street bailout fund for emergency aid. General Motors Corp. and Chrysler LLC have said they could be weeks from collapse. Ford Motor Co. says it does not need federal help now, but its survival is far from certain.

"If a company such as General Motors filed for Chapter 11 bankruptcy protection it could strike the Dow below 8,000 again," said Jackson Wong, investment manager at Tanrich Securities in Hong Kong.

News about the rejected auto bailout sent the dollar as low as 88.16 yen - its lowest level since Aug. 2, 1995 - before it recovered some to 89.70 yen. That heaps more bad news on major exporters like Toyota and Sony, already reeling from waning global consumer demand.

Auto stocks from Bangkok to Tokyo plummeted. In Tokyo, Toyota Motor Co. dived 10.6 percent and Honda Motor Co. slid 12.9 percent. South Korea's Hyundai Motor Co. shed 9.3 percent and Kia Motors Corp. was off 9.1 percent. Thailand's AAPICO Hitech, an auto parts maker, fell 4.2 percent.

In a special three-part report for the CBS Evening News, correspondents John Blackstone in San Francisco, Celia Hatton in Beijing and Richard Roth in England reported on the international ripple effect of decreased U.S. retail demand.
When parents in California buy fewer toys, the Chinese factories which manufacture those toys - and the boxes they're sold in - close up. When the Chinese manufacture less boxes they need less raw material, and that means recycling companies in Britain are getting far less money for the "commodity" of their waste paper.

"It's hard to truly convince investors that the government can move effectively to steer the economy from here. That's the source of the pessimism," said Cheng Weiqing, an analyst at Citic Securities in Beijing.

On Friday, the minister of industry said Beijing will spend 15 billion yuan ($2.2 billion) to help smaller companies improve technology, part of a string of government moves that includes a 4 trillion yuan ($586 billion) economic stimulus package.

But figures this week suggest that China's economy is slowly sharply. For the first time in seven years, exports fell in November.

Thursday on Wall Street, the Dow Jones industrial average fell 196.33 points, or 2.2 percent, to 8,565.09.

Investors grappled with news that new unemployment benefit applications in the week ending Dec. 6 rising to a seasonally adjusted 573,000 from an upwardly revised figure of 515,000 in the previous week. And Bank of America Corp. announced it expects to cut 30,000 to 35,000 jobs over the next three years as it tried to absorb Merrill Lynch & Co.

The past week of gains in world markets was "more predicated on hope than reality," said Arjuna Mahendran, head of Asian investment strategy at HSBC Private Bank in Singapore.

Investors were now facing a reality check after earlier this week shrugging off dire economic data from the U.S. and China including the loss of more than half a million American jobs in November, he said.

"This has been a typical bear market rally. It's been based on very high expectations of Obama's fiscal stimulus plan. It's been based on expectations and nothing else," Mahendran said.

President-elect Barack Obama last weekend flagged a massive stimulus package for the U.S. economy once he takes office in late January, pledging the largest public works program since the creation of the U.S. interstate highway network a half-century ago.

Oil prices retreated after jumping the previous day. Light, sweet crude for January delivery fell $2.14 to $45.84 a barrel in electronic trading on the New York Mercantile Exchange by midafternoon in Singapore.