Stearns, Macquarie spook indices

Stocks dropped worldwide after Bear Stearns Cos stopped investors from pulling money out of a hedge fund and Macquarie Bank said two of its funds may post losses as the US subprime-market rout spreads.

Bear Stearns shares traded at a 19-month low before the open of US exchanges. Royal Bank of Scotland Group and ING Groep NV led shares of financial companies lower in Europe, while Mizuho Financial Group slid in Japan. Macquarie, Australia's largest securities firm, tumbled the most in five years.

The Morgan Stanley Capital International World Index, a global benchmark, fell 0.8 per cent to 1,553.62 as of 8:33 a.m. in New York, with all 10 industry groups slipping. Futures on the Standard & Poor's 500 Index declined 0.5 percent. The dollar also retreated, while the risk of owning European corporate bonds soared. 

UNITED WE FALL Asian Markets
	Aug 01,07	Chg#	Mcap loss*
Taiwan	8891.88	-4.26	-23.92
South Korea	1856.45	-3.97	-45.00
Indonesia	2256.31	-3.93	-6.96
China	4300.56	-3.81	-100.22
Singapore	3431.71	-3.27	-15.89
Hong Kong	22455.36	-3.15	-70.20
Malaysia	1339.49	-2.49	-7.49
*In $ billion, # % change over prev day

"No one knows where the ultimate subprime risk resides so investors across the globe are ducking for cover,'' said Simon Carter, head of North American equities at Aegon Asset Management in Edinburgh, where he helps oversee $3 billion. ``Incremental news of hedge funds and subprime issuers shutting their doors will likely continue."

Concern that defaults among subprime mortgages may be spilling over to other credit markets and hurt earnings and takeovers is forcing investors to reappraise the risk of owning equities. The MSCI World has dropped 6.3 percent since its 2007 high on July 19.

National benchmarks fell in all 17 western European markets that were open on Wednesday. The UK's FTSE 100 retreated 1.4 per cent, while France's CAC 40 slid 1.9 per cent. Germany's DAX slipped 1.1 per cent.

Yen, Treasuries

The yen rose to the highest in 12 weeks against the dollar, climbing to 117.86 from 118.61. It topped 118 for the first time since April 19. The yield on the benchmark US 10-year note was little changed at 4.74 per cent, according to bond broker Cantor Fitzgerald LP.

All Asian markets dropped except Vietnam. Japan's Topix Index lost 2.2 per cent. South Korea's Kospi plunged 4 percent. The MSCI Emerging Markets Index, which includes Russian, Chinese and Brazilian equities, lost 3.3 per cent.

US stocks tumbled yesterday after American Home Mortgage Investment Corp., which caters to homeowners with more reliable payment records, said it lacks cash to fund new loans.

Bear Stearns, manager of two hedge funds that collapsed last month, said after US markets closed that it halted redemptions from a third fund as losses in the credit markets expand beyond securities related to subprime mortgages.

Asset-Backed Securities

The Bear Stearns Asset-Backed Securities Fund had less than 0.5 per cent of its $900 million of assets in securities linked to sub-prime loans, spokesman Russell Sherman said in an interview yesterday. Even so, investors concerned about losses sought to withdraw their money, he said.

Bear Stearns declined $3.62 to $117.60. Citigroup Inc, the biggest US bank, dropped 37 cents to $46.20. Lehman Brothers Holdings Inc, the largest US underwriter of mortgage bonds, slipped 99 cents to $61.01.

Macquarie tumbled 11 per cent to A$73.70, the biggest drop since Feb. 6, 2002. The bank said investors in some of its high- yield funds may lose as much as 25 per cent of their money. Macquarie Fortress Investments Ltd was forced to sell assets and use the proceeds to reduce borrowings.

Funds losses may worsen because banks are forcing borrowers to sell assets as the value of collateral declines.

"Issues once specific to America are now flowing through to the rest of the world,'' said Hans Kunnen, who helps manage $117 billion at Colonial First State Global Asset Management in Sydney. ``People are nervous because Macquarie looks and smells a lot like the companies that have been affected by this in the US."

Futures drop

S&P 500 futures expiring in September lost 13.10 to 1,448.80. Dow Jones Industrial Average futures fell 102 to 13,173. Nasdaq-100 Index futures decreased 12.75 to 1,933.