HONG KONG: Asian shares slumped in their biggest daily fall in nearly a month, while US Treasuries gained after a US task force rejected GM and Chrysler.
S&P stock futures dropped and European shares fell about 3 per cent in early trade, with investors also spooked by news on Sunday that Spain would bail out regional savings bank Caja Castilla La Mancha, marking yet another official rescue of a firm hit by the global crisis.
The announcement by the White House autos panel marked a stunning reversal for GM and Chrysler and raises the prospect of bankruptcies that could further debilitate the already ailing US economy.
The news sparked a fresh wave of risk aversion among investors, boosting the yen and US Treasuries and setting back a stocks rally that started in earlier March on optimism the global economy may be bottoming out and the United States may finally be getting to grips with toxic debt on banks' books.
News on the US auto firms comes ahead of a busy week that will feature the G20 gathering in London, a policy meeting by the European Central Bank, and employment data in the United States.
"Anything that spells of rejection in terms of bailout these days is not treated very well. We've seen threats of this before on other things, and it tends to spook the market a bit," said David Spry, a research manager at F.W. Holst in Sydney.
The MSCI index of Asia-Pacific stocks outside Japan extended its slide, falling more than 4.5 per cent after the autos news. The gauge had its biggest daily per centage fall since a 4.3 per cent decline on March 2.
Asian stocks went on to hit their 2009 low on March 4, before staging a spectacular recovery that as of last week had raised the Asia MSCI index outside Japan by 26 per cent. US stock futures were also hit on Monday, sending the S&P 500 down 2 per cent.
In Japan, the Nikkei average slumped 4.5 per cent. "We are still not out of the woods as far as the economic landscape goes. Job losses are mounting in the US and I feel the developments of late represent the economy is just coming off the bottom," said Stephen Roberts, an economist for Nomura in Sydney.
The US autos task force determined that the turnaround plans submitted by General Motors Corp and Chrysler LLC could not ensure their viability.
The fate of GM has been of particular concern. The US administration pledged only to fund operations at the biggest US auto maker for the next 60 days, instead of granting GM's request for up to $30 billion in loans.
