• ACI Russia

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

summarily dumped.

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))

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