Subprime strikes again

GLOBAL MARKETS

Asian stocks tumbled to their biggest two-day drop in a year after Australia's Rams Home Loans Group said it was unable to refinance $5 billion of debt amid a widening credit crunch.

The Morgan Stanley Capital International Asia-Pacific Index lost 2.5 per cent to 141.89 in Tokyo, the lowest since March and its biggest two-day decline since June 2006. About 10 stocks retreated for each that gained today as benchmarks slid across the region.

Japan's Nikkei 225 Stock Average dropped 2 per cent to 16,148.49, its lowest close since November. Sony Corp. led Japanese exporters lower after the yen strengthened to the highest against the dollar since March.

South Korea's Kospi index plunged 6.9 per cent, its largest loss since June 2002.

Toyota Motor Corp and Samsung Electronics Co fell after reports showed US home sales dropped to a four-year low and prices declined in a third of the nation's cities.

Europe

Stocks in Europe and Asia tumbled and US index futures dropped as concern deepened a global credit crunch will sap earnings and erode economic growth. Bonds gained worldwide and the yen rallied against the dollar.

Deutsche Bank AG, Germany's largest bank, and BNP Paribas SA of France paced declines in Europe. BHP Billiton and Rio Tinto Group led mining shares lower as metals prices fell. Rams Home Loans Group plunged in Australia after saying it failed to refinance debt, while Macquarie Bank led a drop in Asian financial stocks.

The Morgan Stanley Capital International World Index fell 1.3 per cent to 1,474.56, while Standard & Poor's 500 Index futures sank 19.7 to 1,394.7 in London. The MSCI World has declined 11 per cent since reaching a 2007 high on July 19.

US

US stock-index futures extended losses as investors fled high-risk assets on concern the credit- market debacle may spill over into the economy.

Goldman Sachs Group Inc. and Citigroup Inc. led a retreat of financial stocks in Europe. Home Depot Inc. shares slipped before a report that may show builders started work on the fewest homes in a decade in July, as the industry showed few signs of recovering from the 18-month recession. Hewlett-Packard Co., the largest personal-computer maker, fell before reporting earnings.

The US stock market retreated yesterday, erasing this year's S&P 500 gains, on speculation Countrywide Financial, the nation's biggest mortgage lender, may be forced into bankruptcy.

William Poole, president of the St. Louis Federal Reserve Bank, said the subprime mortgage rout doesn't threaten economic growth, and only a "calamity'' would justify an interest-rate cut now.

Treasuries advanced today, pushing two-year yields to the lowest in 22 months, as a slide in global stocks fed demand for the relative safety of government debt.

Standard & Poor's 500 Index futures expiring in September dropped 16.80 to 1,398.30 in London. Dow Jones Industrial Average futures slid 124 to 12,797 and Nasdaq 100 Index futures lost 19.75 to 1,858.75.

"There are investors out there liquidating positions no matter what the market situation is, and this makes the rest of the market participants very nervous,'' said Guenther Gerstenberger, a fund manager at Oberursel, Germany-based PEH Wertpapier AG, which oversees about $5.5 billion. "Pure panic reigns the markets at the moment and the longer it lasts, the more likely that this may affect fundamentals.''