Asian Stocks Tumble on Bear Stearns News

JPMorgan said Sunday that it would acquire its rival in a deal valued at $236.2 million or $2 a share and that the Federal Reserve would provide special financing for the deal.

The buyout was aimed at averting a bankruptcy and a spreading crisis of confidence in the global financial system.

But to Asian investors the move showed that the credit crisis, triggered by defaults on risky U.S. mortgages amid a slowdown in the housing market, was far from over and fanned worries that troubles at big American banks were unlikely to be contained just to Bear Stearns.

"There is persistent credit uncertainty. Market players have been repeatedly let down which shows the subprime mortgage problems are so deep-rooted," said Atsuji Ohara, global strategist of Shinko Securities in Tokyo. "Just buying an investment bank does not solve the problem. Markets are prodding (the U.S. government) to inject public funds."

News of the acquisition of Bear Stearns, one of the world's largest and most venerable investment banks, came just before the opening of markets in Tokyo and Seoul.

Also, the Federal Reserve, in an extraordinarily rare weekend move, took bold action Sunday evening by cutting its discount rate, a lending rate to financial institutions, to 3.25 percent from 3.5 percent, effective immediately. The Fed also created another lending facility for big investment banks to secure short-term loans. The new lending facility will be available to big Wall Street firms on Monday.

Japan's benchmark Nikkei 225 stock index plunged 4.2 percent to 11,727, while Hong Kong' Hang Seng index was down 4.4 percent at 21.263.51 after falling as much as 5 percent. The Korea Composite Stock Price Index in Seoul declined more than 3 percent. Markets in China, Australia, Indonesia, the Philippines and New Zealand also dropped.

The dollar also sank below 96 yen its lowest since at least September 1995.

U.S. stocks sank Friday after the announcement of a Fed plan in conjunction with JPMorgan Chase to alleviate the liquidity crisis at Bear Stearns touched off concerns about the severity of credit troubles in the world's largest economy. The Dow Jones industrial average fell 194.65, or 1.60 percent, to 11,951.09.