Stock markets in emerging economies fell further worldwide Monday, as a continuing downturn in Asian markets spread to Latin America.
And by midday today in Asia, the sell-offs there showed few signs of abating.
The falling markets reflect economic problems related to recent currency devaluations in Asia, raising fears for the United States economy as well, should global economic growth begin to slow markedly.
On Monday, while U.S. markets were closed for Labor Day, Brazil's Bovespa stock index fell 5.3%, bringing the two-session drop to more than 14%. Argentina's stock market, closely linked to Brazil's, fell 2.8% after a 3.7% drop on Friday.
Brazilian interest rates rose Monday, and the country's currency, the real, weakened amid speculation that the government might relax its strong-currency policy and allow the real to devalue at a faster clip.
The declines in Brazil and elsewhere demonstrate the linkage that all emerging countries have. The market drop is part of the ongoing crisis that began in July with Thailand's financial problems and subsequent 40% currency devaluation.
The shock continues to reverberate. Hong Kong stocks fell 5% on Monday, on top of a combined skid of 9% on Thursday and Friday. Stocks also fell for a third straight day in the Philippines, Thailand, Singapore and in Japan, where averages hit a four-month low Monday.
Indonesia's stock market hit a three-year low as its currency, the rupiah, and the Malaysian ringgit slid further against the dollar.
At midday today, stocks in the Philippines, Singapore, Indonesia and Hong Kong were down again, while Malaysian, Thai and Japanese stocks attempted to rally.
Asian investors are still very uncertain where stocks will settle, judging from a spate of "panic selling" that prevailed in the Hong Kong market during the last 20 minutes of trading Monday, said Howard Gorges of South China Securities.
The International Monetary Fund hoped aid packages it assembled for Thailand and the Philippines would staunch the crisis, but investors remain unconvinced. Fund managers are heading for the exits, and billions of dollars of investments are leaving for more stable economies, observers said.
Robert Dederick, economic consultant at Northern Trust Co. in Chicago, said the area was vulnerable to a shock.
Speculative trading has sent currencies in neighboring countries, notably Malaysia, the Philippines and Indonesia, plummeting as well versus the dollar.
"It's not clear yet if the worst has been seen in Asia, and until that's cleared up, Latin American markets will be volatile," said Gordon Lee, an analyst with Deutsche Morgan Grenfell in Mexico City.
Mexico's stock market was closed Monday in observance of President Ernesto Zedillo's state of the union address. But Mexican stocks fell 7.5% last week, and analysts feared stocks could drop further today because of Asian instability and the political uncertainty surrounding the newly installed opposition-controlled Congress.
Lee said investors are also worried that the United States and Germany might soon raise interest rates--moves that would certainly attract more investors away from riskier Third World markets.
"Mexico and Argentina might have to raise interest rates in response, and that would hurt their economies," Lee said.
The weakening in Brazil's currency was sparked by tacit acknowledgment by Minister Pedro Malan in a newspaper interview that Brazil's currency is overvalued, analysts said.
Meanwhile, European markets provided the bright spots in Monday's trading, as blue-chip shares on the Frankfurt exchange rose 2% and those in Paris rose 1.3%. London shares climbed 1.1%.
Some economists are warning that continued problems in Asia could pose a threat to the U.S. and European economies by putting a damper on trade and business deals in the region.
"Those countries have become increasingly important to us as trading partners," said Cynthia Latta of DRI/McGraw Hill in Lexington, Mass. "If their economies flop, they won't be able to afford our goods."
Singapore bought $8.7 billion in U.S. goods over the first half of the year and Malaysia purchased $5.3 billion, government figures show.
Some of the countries borrowed heavily from abroad to buy goods from the U.S. and elsewhere and to buoy their once-high-flying economies, building up hefty debts and trade deficits.
With the recent run-up in the U.S. dollar, their economies have been badly pinched. Although the strong dollar has made U.S. goods more costly for those countries, it has also made their goods cheaper for American buyers.
More troubling for Wall Street would be if Asian central banks and other big investors unload their large holdings of U.S. Treasury securities, which could also work to raise U.S. interest rates.
Still, there is little incentive for them to do so when the dollar is strong, experts say. In trading early today in Asia, the dollar was rallying against both the German mark and the Japanese yen, at 1.817 and 121.30, respectively.
Even though prices of Southeast Asian stocks are declining, analysts aren't yet advising clients to snap up shares.
"With the continued tumble in the Asian equity markets, we remain cautious," said Holly Sze of Smith Barney in New York.
Edward Yardeni, economist at Deutsche Morgan Grenfell in New York, warns that the "meltdown in Asian economic and financial systems is likely to spill over into Japan, posing a serious risk to their fragile recovery."
"That supports our view that deflation, not reflation, is the global risk" now, he said.
Associated Press and Bloomberg News were used in compiling this report.