March 17 (Bloomberg) -- Asian stocks, U.S. index futures and the dollar tumbled, while bond futures rose, after the Federal Reserve cut its discount interest rate at an emergency meeting and JPMorgan Chase & Co. agreed to buy Bear Stearns Cos.
All Asian stock benchmarks open for trading fell, led by National Australia Bank Ltd. in Sydney and Mitsubishi UFJ Financial Group Inc. in Tokyo. The dollar sank to a record low against the Swiss franc and a 12-year low against the yen.
``It's dire,'' said Angus Gluskie, who helps manage the equivalent of $500 million at White Funds Management in Sydney. The Fed's actions are ``indicative of the very significant credit issues we've got globally at the moment. And what we've seen with Bear Stearns is just another step in the process.''
The Federal Reserve is stepping up efforts to prevent strains on financial markets from worsening. The rate-cut decision, taken ahead of the Asian trading day, coincided with JPMorgan buying Bear Stearns for about $240 million, or the equivalent of $2 per share, about 1/40th its share price of a month ago. The company said on March 14 its liquidity position had ``significantly deteriorated'', prompting the Federal Reserve to provide history's largest bailout of a U.S. securities firm.
The dollar weakened to as low as 96.58 against the yen, a level not seen since August 1995, after the Fed said it would lower the rate on direct loans to commercial banks by 25 basis points to 3.25 percent to ensure ``orderly market functioning.'' Japan's 10-year government bonds rose, sending yields 3 basis points lower to 1.23 percent.
Asian Stocks Drop
The MSCI Asia Pacific Index dropped 1 percent to 134.60 as of 10:35 a.m. in Tokyo, the lowest since Jan. 22. Japan's Nikkei 225 Stock Average tumbled 3.5 percent, Australia's S&P/ASX 200 Index declined 2.3 percent, while South Korea's Kospi index slumped 2.5 percent.
``Facilitating a purchase of Bear by JPMorgan is, in effect, more Band-Aids when the patient needs surgery,'' said Ed Rogers, chief executive officer of Rogers Investment Advisors Y.K., which operates a fund of hedge funds. ``There is a lot more pain to come.''
Standard & Poor's 500 Index futures expiring in June slumped 1.7 percent to 1,270.60. Only one of the 33 industry groups included in Japan's broad Topix index advanced.
Financial shares led declines in Asia. National Australia Bank, the country's largest bank, fell 5.5 percent to A$26.13. Mitsubishi UFJ Financial Group, Japan's biggest lender by market value, slumped 4.2 percent to 794 yen. Woori Finance Holdings Co., South Korea's third-largest financial services company by market value, tumbled 4.8 percent to 16,000 won.
Default Swaps Surge
Takero Inaizumi, a manager at Mizuho Investors Securities Co. in Tokyo, said the $2 dollar price for Bear Stearns indicates how close the company was to collapse and raises concern that other U.S. financial companies may fail. Bear Stearns shares closed at $30 on March 14, down 47 percent on that day alone.
Hitachi Ltd., Japan's largest maker of electronics, plunged 8.5 percent to 621 yen after reversing a forecast for a profit for the year ending this month to a 70 billion yen ($714 million) net loss.
The cost to protect corporate bonds from default in Australia and Japan surged to records after the announcement of JPMorgan's purchase. A benchmark credit-default swap index in Japan gained 26 basis points to 237 basis points in Tokyo, according to Morgan Stanley, while the Australian index increased 26 basis points to 225 basis points, according to Citigroup Inc. The rising cost of insurance indicates that investors see an increasing risk of companies defaulting on their debt.
The so-called TED spread, the difference between what the U.S. government and companies pay for three-month loans, climbed 0.6 percent today, indicating that banks are less willing to lend to corporations.
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