Author`s name Dmitry Sudakov

USA spreads financial chaos all over the world

Russia’s two major stock exchanges RTS and MICEX suspended their tender Tuesday morning at the direction from the Federal Service for Financial Markets. The MICEX index dropped 1.07 percent when the tender was stopped.

The Russian stock market has thus continued its decline after US lawmakers at the Congress rejected the bailout bill for troubled financial institutions.

The Federal Service for Financial Markets stopped insecure short sales at Russian exchanges at 10:00 a.m. Tuesday, shortly before the tender was stopped, RIA Novosti reports.

The Service already banned insecure short sales on September 17, when the Russian stock market dropped. However, the ban was lifted soon afterwards when the market started growing

The head of the Federal Service for Financial Markets, Vladimir Milovidov, said that the organization was not going to take extraordinary measures in connection with the rejected of the 700-billion-dollar bailout bill at the US Congress. If the Russian stock market keeps the pace in the tideway of global financial trends, there will be no special measures taken in Russia, the official said. However, Milovidov added that the Federal Service was prepared to make tough actions in case of panic.

The financial crisis has thus embraced the whole planet now. European stock markets dropped by 4-5 percent because of the news about the nationalization of Europe’s large banks, The Vedomosti newspaper said.

Asian stock markets dropped to the lowest point in three years Tuesday, Interfax reports. MSCI Asia Pacific dropped by 4 percent in the beginning of the tender. Japan’s Nikkei lost 2.6 percent and even reached the minimum since June 2005. Taiwan’s Taiex dropped by 4.1 percent, which became the biggest reduction in the region for the time being. China’s stock exchanges are closed this week in connection with national holidays.

The international index MSCI World, which incorporates the situation in 23 different countries, collapsed by 6.9 percent, which set a record in over 20 years.

Japan’s largest bank Mitsubishi UFJ Financial Group Inc. dropped by 4.4 percent along with the leading bank of South-East Asia Азии DBS Group Holdings Ltd. – 2 percent.

The prices on fuel continue their reduction on world markets and affect stock quotations of mining and processing companies.

Oil prices dropped by more than ten dollars Monday, which triggered a 5.9 percent reduction of world’s largest oil mining company BHP Billiton Ltd. The stocks of the largest Korean refinery SK Energy slid 3.8 percent. The shares of Australia’s largest exporter of iron ore, Fortescue Metals Group Ltd, became ten percent cheaper.

The financial market of the United States showed a negative reaction to the news about the rejection of the bailout bill. Dow Jones Industrial Average, the basic index of the US business activity, lost seven percent, S&P 500 – 8.8 percent, which marked a record since 1987.

Such news promises nothing good to the Russian stock market. The news from the US triggered a collapse of the Asian indexes, a reduction of oil prices, raw materials and metals, which automatically predetermines the dynamics of the Russian market.

Experts say that the Russian economy will slow down in its development during the forthcoming two years. Independent experts say that the growth of the Russian GDP may reduce to 4 percent next year and may decline even further in 2010, The Nezavisimaya Gazeta reports.

Investors were stunned by the U.S. House of Representatives' rejection Monday of a US$700 billion emergency bailout package that would have allowed the government to buy bad mortgages and other sour assets held by troubled banks and other financial institutions.

With elections in November, many lawmakers were unwilling to take the political risk of supporting a measure that many American voters see as an undeserved bailout for rich, reckless investment bankers.

"This is a bad development," Australian Prime Minister Kevin Rudd told reporters in Australia's capital, Canberra. He urged U.S. lawmakers to urgently return to negotiations to come up with a deal that will prevent further infection of world markets.

In New York, the Dow Jones industrial average plunged 777 points, its biggest ever single-day drop, or nearly 7 percent, to 10,365.45, its lowest close in nearly three years.

Japanese Prime Minister Taro Aso urged the country's financial officials to closely monitor the situation and take appropriate measures to protect the world's No. 2 economy, according to Kyodo News agency.

"We have to respond appropriately in order not to affect the Japanese economy and to prevent the financial system from falling apart," Aso was quoted as saying.

Japan 's banks have relatively little exposure to the bad mortgages at the core of the global credit crisis, but investors are worried that a slowdown in the U.S. and global economy will hurt demand for exports.

The Bank of Japan on Tuesday morning pumped another 3 trillion yen (US$28.7 billion) into money markets, as part of efforts by central banks worldwide to boost liquidity and bolster interbank lending. That brings the BOJ's total injection to 21 trillion yen (US$200.6 billion) since the collapse of Lehman Brothers Holdings Inc. earlier this month.

The chaos sapped the dollar overnight. The greenback was trading at 104.32 yen Tuesday afternoon in Asia from above 106 yen a day earlier, adding further pressure on major exporters.