Asian governments act to prop up stocks, currencies

Rafael Nam ,  The Associated Press ,  Hong Kong   |  Tue, 09/30/2008 6:49 PM  |  Headlines

Asian governments from SouthKorea to Indonesia stepped in swiftly on Tuesday to try to prop up marketsreeling from an overnight plunge in the United States after U.S. lawmakersrejected a $700 billion plan rescue plan for the financial industry.

Throughout the region, finance authorities and central banksspoke up to defend the soundness of their economies and acted by tighteningstock-selling rules and buying tumbling currencies hurt by the flight of moneyfrom emerging markets.

In Taiwan, the president, vice premier, central bank andfinancial regulator made moves and comments to ease jittery markets.

"Taiwan's economic fundamentals are still good,"President Ma Ying-jeou said in a speech at a local event. "We have themeans to weather this global financial crisis."

India's finance minister, Palaniappan Chidambaram, steppedin to assure investors that market regulations would be tightened if needed.

"There is nothing to worry about. The regulations thatare in place are adequate. If the regulations are to be tweaked, we will doso," he told reporters.

Malaysian Deputy Prime Minister Najib Razak said the governmentwas maintaining its growth forecast of 5.5-5.8 percent for the year, adding thecountry was on track with opening its markets despite the Wall Street collapse.

Among Asia's financial market watchdogs, Taiwan's topfinancial regulator placed tighter limits on the short-selling of stocks, whileHong Kong's Securities and Futures Commission warned it would not tolerateabusive practices and could impose market-wide controls.

Other governments moved to outright bans.

Indonesia's stock exchange said it would prohibit shortselling of stocks in October, and South Korea said it would do so for the timebeing while at the same time increasing the amount of shares firms are allowedto buy back.

The restrictions or outright bans on short selling followsimilar actions by U.S. and European regulators this month, and come as Asianstocks head in September for their biggest monthly slide since the financialcrisis a decade ago.

The failure on Monday of Washington's biggest and mostcomprehensive bid to keep financial sector shockwaves from tearing up the realeconomy handed the U.S. S&P 500 stock index its biggest decline sinceOctober 1987 and the Dow Jones industrial average its biggest points fall onrecord.

Asian stocks suffered heavily in September, victims of asell-first-and-ask-later mentality among global investors. With risk aversionwidespread, emerging market holdings have been among the first to be sold,analysts have said.

The MSCI index if Asia-Pacific stocks outside Japan is downabout 16 percent in September, similar to the slide seen in the same montheight years ago and potentially its largest decline since October 1997.

"Despite the fact that the U.S. is at the centre of thecrisis, every time the crisis escalates, capital leaves emerging Asia,"said Citigroup analysts in a note to clients on Tuesday.

"This is probably a result of flight to quality. But italso provides strong evidence (that) refute the so-called decouplingthesis," they added.

The tighter rules on short-selling, combined with expectationsthat U.S. lawmakers will eventually approve a rescue plan helped many Asianstock markets pull back from their day's lows, but analysts expect broad riskreduction to continue as investors pull money out of the region.

Asian currencies have also come under fire this month.

The South Korean won dropped 1.5 percent on Tuesday,bringing its loss for September to 9.8 percent, its biggest monthly percentageloss since December 1997. Its loss for the year so far is well over 20 percent.

The falls on Tuesday came despite some talk overdollar-selling intervention by the foreign exchange authorities and even afterthe Finance Minister said the country would spend part of its foreign exchangereserves to stabilise markets if necessary.

South Korean authorities have spent more than $30 billionthis year to try to underpin the won.

Other governments also moved to support their ailingcurrencies. The Philippine central bank sold dollars on Tuesday to prop up thepeso, while the Bank of Thailand intervened on the baht to keep its moves inline with other Asian currencies though it did not specify which action hadbeen taken. 

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