Beijing - Gloomy figures from Japan and South Korea sparked a massive sell off on Asian markets on Friday, as regional leaders agreed to set up an $80bn fund to fight the global economic crisis.
The agreement, reached as more than 40 Asian and European countries gathered in Beijing for talks on the worst financial crisis since the Great Depression, came as officials in Washington warned of a sharp rise in US unemployment.
The deal between South Korea, China, Japan and the 10 members of the Association of Southeast Asian Nations (ASEAN) is the first major coordinated regional action since the financial turmoil erupted last month.
A spokesperson for South Korean President Lee Myung-Bak said the 13 leaders had pledged to work more closely on economic matters.
"(They) agreed on the need to strengthen regional cooperation and policy coordination in the face of the global financial crisis," the spokesperson said.
Samsung's sharp drop
Despite the announcement, Asian stock markets took another hammering, as fears grew that the financial crisis was taking a heavy toll on corporate earnings in the region.
Japan's Nikkei stock index lost 7% to plunge below 8 000 points for the first time in more than five years after electronics giant Sony, considered a bellwether of the Japanese economy, issuing a profits warning.
Seoul dived 9% after the government said the domestic economy grew at its slowest pace for four years and Samsung Electronics reported a sharp drop in quarterly profit.
"Wall Street closed higher overnight, but it was only a marginal gain after massive selling. The direction of global markets has not changed," said Daisuke Uno, chief market strategist of Sumitomo Mitsui Banking.
"Looking at the volatility on Wall Street, the trend on overseas markets and the higher yen, it's no surprise Tokyo share prices are falling," said Uno.
Japanese companies rely heavily on overseas markets and a stronger yen can have a severe impact on their repatriated earnings.
Tokyo and Seoul were not the only markets under pressure. Sydney closed 2.6% lower, while Hong Kong dropped 4.7% in the morning session and Singapore lost 4.82%.
'Once-in-a-century credit tsunami'
"The market seems to be still in panic," Lee Kyung-Soo, from Taurus Investment & Securities, told Dow Jones Newswires.
In New York, the Dow Jones Industrial Average rose 2.02% on Thursday after swings in both directions, while London rebounded 1.16%, Paris closed up 0.38% and Frankfurt shed 1.12%.
In Washington, the White House warned of a sharp rise in layoffs and unemployment stemming from the global economic crisis, amid fresh warnings of a painful and lasting recession.
Spokesperson Dana Perino said former Federal Reserve chief Alan Greenspan was right to warn, in testimony to a US congressional panel, of what he called "a significant rise in layoffs and unemployment."
"We're in for a rocky road on the employment front," Perino told reporters.
Greenspan, who ended his 18-year stint as chairperson of the US Federal Reserve before a years-long housing bubble burst, warned that a "once-in-a-century credit tsunami" would pummel consumer spending and jobs.
In France, President Nicolas Sarkozy announced the creation of a €100bn sovereign wealth fund to protect strategic sectors of the economy from the global financial storm.
Declaring that the recent turmoil had killed off the "dictatorship of the market," Sarkozy vowed to lead Europe towards a model in which the state will take a more active role in industry and protect firms from foreign takeover.
Sarkozy's proposal however did not go down well in Berlin where the German government said any such measures must be compatible with European Union rules.
Governments around the world have unveiled rescue packages over the past month totaling more than $3 trillion, including loan guarantees and cash injections, to restore confidence to banks and reverse a drop in lending.
- AFP