Markets in reverse as U.S. automakers seek more help

SINGAPORE (Reuters) - New survival plans in which U.S. automakers sought billions of dollars of extra government funds drew sceptical responses, while deepening fears about global growth pushed share markets into reverse on Wednesday.

General Motors and Chrysler had raced to meet a deadline to detail their plans on Tuesday, the day President Barack Obama signed into law a $787 billion (552 billion pound) package of spending and tax cuts meant to reinvigorate the world’s biggest economy.

It was the biggest stimulus initiative of its kind in U.S. history but investors were left wondering if, as Obama said, it would mark the beginning of the end of America’s financial woes.

Investors also doubted U.S. auto makers would be able to return to profitability without first going through bankruptcy reorganisation that would likely mean plant closures and tens of thousands of job losses.

“If that were to occur, it would probably be a very messy and lengthy process which would further undermine confidence in the fragile economy,” said Michael Sheldon of Connecticut’s RDM Financial.

The news across Asia has been almost uniformly bad with Japan, the world’s second-largest economy, reeling from its worst downturn in a generation.

China on Wednesday denied a magazine report quoting a senior official as saying its slowing economy meant the yuan might weaken to as low as 6.95 to 7 per dollar.

China Briefing magazine first attributed the comments to National Development and Reform Commission deputy head Zhang Xiaoqiang but later issued a correction, saying they were by Liu Mingkang, head of the China Banking Regulatory Commission.

Both bodies denied their officials had made the comments.

Beijing said it would increasingly use its $2 trillion in foreign exchange to support domestic growth and finance the expansion of Chinese companies overseas.

But with slowing exports creating legions of newly unemployed in China, Beijing also warned it must guard against “hostile forces” at home and abroad trying to stir up trouble among the jobless. About 20 million jobs have been lost in southern China’s manufacturing hub of Guangdong alone.

In Taiwan, a source close to the government said GDP plunged 8.36 percent in the fourth quarter of 2008, its worst performance on record, sending its economy into recession with a second consecutive quarter of contraction.


The rare exception has been Australia, where shoppers took advantage of stimulus measures and falling interest rates to keep their wallets open, possibly long enough to avoid recession.

The latest retail data showed sales adjusted for inflation rose 0.8 percent in the fourth quarter to A$53.5 billion (23.9 billion pound), the biggest rise in a year but still shy of forecasts.

The next quarterly GDP figures, due on March 4, are expected to show the Australian economy barely grew, commendable in the global context but still enough to keep up pressure for a further cut in interest rates. Rates have already been slashed 4 percentage points since September to a record low 3.25 percent.

“The global outlook is so terrible, we’re sticking with the view that they’ll cut by 50 basis points at the March meeting,” said Paul Brennan, head of market economics at Citi in Sydney, referring to the next Reserve Bank of Australia monthly meeting.


GM and Chrysler want almost $22 billion in extra government aid on top of the $17.4 billion already received, leaving analysts to wonder if that was throwing good money after bad.

Two of Detroit’s Big Three announced plans that included job cuts and capacity reduction and said they had reached a tentative deal with union leaders to reduce labour costs.

GM warned it could run out of cash as early as next month and its shares fell 12.8 percent on Tuesday. Chrysler said it sees the downturn in the U.S. auto market lasting another three years.

The White House has not ruled out a government-managed bankruptcy for automakers. Obama’s new automotive industry task force will meet with GM and Chrysler this week.

Wider fears about the reach of the global financial crisis played on share markets, particularly after ratings agencies warned on Tuesday that a deep recession among Eastern Europe’s hard-hit economies could further damage European banks.

The MSCI index of Asia-Pacific stocks outside Japan fell about 1.1 percent, following U.S. stocks which had hit their lowest marks in three months.

Australia’s share index, Japan’s Nikkei and Hong Kong’s Hang Seng all fell about 1.5 percent. Asian currencies were also down after the Taiwane GDP report but the yuan rebounded after the comments about it weakening were denied.

The euro earlier fell to a 2- month low of $1.2558 after ratings agencies reports that emerging European banks with big loan books faced downgrades that could affect their parent banks.

Asian bonds also gained as investors sought safer assets.

Additional reporting by Kevin Krolicki and Poornima Gupta in DETROIT, Wayne Cole in SYDNEY, Lee Chyen Lee in TAIPEI, Rafael Nam in HONG KONG and Reuters bureaux around the world; Editing by Kim Coghill