08/31/1998 18:49:38 FOCUS-World markets tumble, recession talk mounts
(Recasts, updates with U.S. markets activity, Russian
politics; pvs Frankfurt)
By Richard Melville
NEW YORK, Aug 31 (Reuters) - World financial markets
resumed their slide on Monday with U.S. blue chip stocks
retreating to 1997 levels amid a sweeping sell-off that raised
new talk of the possibility of global recession.
Developments in Russia offered little hope that the
political and economic chaos there would be resolved soon. On
Monday, Russia's State Duma, the lower house of parliament,
rejected President Boris Yeltsin's choice of Victor
Chernomyrdin as prime minister.
The Duma's action was widely expected and sparked little
immediate effect on the U.S. market's performance, which
increasingly appears governed more by emotion than by events
and in any case seemed to be girding for one of the worst of
all possible scenarios: global recession.
U.S. strategists continued to cast doubt on that outcome.
"Our take on the U.S. profits, balance sheet and banking
system exposure to all emerging markets and other potentially
'at risk' countries is that it's a fairly small share of the
total," said Lehman Brothers strategist Jeffrey Applegate.
"Global equity markets have essentially priced for a global
recession that we don't think will happen," he said.
In early afternoon activity, the Dow Jones Industrial
Average was down 148 points at 7,904, a level roughly even with
where it started the year. The blue chip benchmark earlier
touched as low as 7,872.
Economists and strategists have argued that for the global
recession model to come to fruition, economies in either the
United States or Western Europe would have to succumb. A
minority see such a development at hand.
But in the current environment, it is hardly surprising
that concerns about global recession have emerged, analysts
"In a market panic, investors are only interested in
avoiding pain," said Credit Suisse First Boston strategist
Christine Callies. "Facts are trampled in the process."
"We doubt that a recession is likely within the next 12 to
18 months, which places it outside the market's analytical time
horizon," Callies said.
Earlier, Bundesbank directorate member Edgar Meister also
said the international reaction to the Russian crisis was
exaggerated and its impact on Europe's economy was more
psychological than real.
Evidence the sell-off in U.S. markets had reached
essentially indiscriminate levels abounded as former market
darlings like Microsoft Corp. <MSFT.O> and Dell Computer
Corp.<DELL.O>, which had so far dodged significant damage, were
U.S. President Bill Clinton is due to arrive in Moscow on
Tuesday and is expected to reinforce German Chancellor Helmut
Kohl's message to Yeltsin that new credit to Russia will be
ruled out if the country abandon's market reforms.
Britain is considering calling a meeting of the Group of
Seven industrialised nations to discuss the Russian crisis and
European finance ministers are debating whether to hold an
emergency meeting on the same issue.
Markets in Europe were pummeled and Germany, whose banks
have the most extensive ties with Russia, remained the main
victim of the tumult. The German DAX index fell more than three
percent and France's CAC-40 fell nearly two percent.
London markets were closed on Monday for a public holiday.
The declines followed a rout in Asia. Hong Kong's Hang Seng
index skidded 7 percent as the government all but abandoned
efforts to prop up share prices there.
In another blow, credit rating agency Standard & Poor's
announced in New York on Monday afternoon it had lowered its
local and foreign currency credit ratings on Hong Kong.
Thailand, Indonesia and Taiwan also fell steeply, although
Japan did close with gains.
The U.S. dollar dipped in U.S. trading, hampered by
concerns over the stock market's declines.
Gold prices offered no haven. Russia's central bank said
Monday it has stopped releasing daily quotes for gold, silver
and platinum as an indication to banks they should not invest
in the precious metals now.
"The central bank does not believe it necessary to give
banks an indication that they should transfer money into assets
which now have low liquidity, like gold," bank spokeswoman
Irina Yasina said in Moscow.
Sliding currencies in gold-producing countries like South
Africa, Australia and Canada triggered producer selling which
further dragged the bullion price and other precious metals
also felt the pressure.
Gold for December delivery was quoted at $279.20 an ounce
in early afternoon on COMEX, up $1.30 an ounce.
((-- Wall Street desk, 212-859-1730))