Foreign Stock Markets Plunge
World financial markets were panicked Tuesday by the devastating terrorist attacks on New York and Washington, sending oil and gold prices soaring and foreign stock prices plunging.
Trading never opened in U.S. stock markets, and officials said markets will remain closed at least through today.
Securities and Exchange Commission Chairman Harvey Pitt said trading in U.S. stock markets will resume “as soon as it is practicable to do so.”
In midday trading today in Tokyo, the Nikkei stock index was down 5% to 9,773.71. Hong Kong’s key index was down 8.3%, and South Korea’s was off 12.2%.
On Tuesday, the Federal Reserve and Treasury Secretary Paul H. O’Neill tried to calm investors, insisting that the nation’s financial infrastructure was intact and that government agencies would do whatever is needed to keep the system running fluidly.
At brokerage firm Morgan Stanley Dean Witter & Co., which housed a major part of its operations in one of the collapsed World Trade Center towers, Chief Executive Philip Purcell told clients in an e-mail that “all of our businesses are functioning and will continue to function. All our clients should rest assured that their assets are safe.”
But traders in the Treasury bond market warned that the attack on the nation’s financial nerve center could hamper bond trading for days. A major bond dealer, Cantor Fitzgerald, was housed in one of the World Trade Center towers.
The Fed, chief regulator of the U.S. banking system, said it remained open and operating normally. The central bank said it will provide liquidity to the banking system and to financial markets as needed--meaning the Fed would lend to any bank in need of funds.
Fed officials said Chairman Alan Greenspan was out of the country after attending a banking conference in Switzerland but was being kept apprised of developments.
The European Central Bank also said it is ready to support “the normal functioning of the markets if necessary.”
The Treasury’s O’Neill, on an official visit to Japan, told reporters in Tokyo that “in the face of [the] tragedy, the financial system functioned extraordinarily well, and I have every confidence that it will continue to do so in the days ahead.”
Most banks remained open nationwide Tuesday though some individual branches--mainly in high-rises--closed early. Banks are expected to be open today.
SWIFT, the global financial communications system used by commercial banks, brokerages and investment managers to make cross-border payments, said Tuesday that its operations were not affected by the plane attacks in the U.S.
“SWIFT operations are currently unaffected by the situation. SWIFT will, however, remain in a heightened state of readiness,” SWIFT said on its Web site.
Expecting heavy demand, banks rushed extra cash to branches and limited daily withdrawals: $2,500 per customer at Washington Mutual, $2,000 per day at Wells Fargo. Officials at those banks and at Bank of America reported no technical problems with their ATMs.
The attacks occurred just before U.S. markets were to open Tuesday, and officials quickly decided against opening trading, even before the full extent of the damage was known.
But markets in Europe and Latin America continued to trade, and stock exchanges immediately were deluged with sell orders. In Germany, the main share index ended down 8.5%, though it rallied somewhat from its worst levels.
Canadian and Mexican markets closed early with key indexes down 4% and 5.6%, respectively.
Most European markets said they planned to open at normal hours today.
Pressure will be heavy on U.S. markets to reopen Thursday if possible, as orders back up, experts said. It’s also a matter of pride and status that the New York Stock Exchange rarely has closed for long in the post-World War II era, even after such calamities as President Kennedy’s assassination.
What’s more, analysts noted that the longer markets stayed closed, the terrorists behind Tuesday’s attacks would view that as a victory in damaging the United States.
But where stocks were trading overseas on Tuesday, investors only seemed interested in selling. At the same time, traders turned to oil futures contracts and gold.
In London, the price of Brent crude oil shot as high as $31 a barrel, the highest since December, from $27.45 Monday. The price fell back to close at $29.06.
Also in London, gold prices recorded their biggest gain in two years as investors snapped up the metal, considered a classic “safe haven” in times of global turmoil.
Gold for immediate delivery surged $14.70, or 5.4%, to $286.25 an ounce in late London trading.
The dollar fell sharply against the euro and the yen, reflecting traders’ shock that an attack of this magnitude could occur on U.S. soil. The dollar dropped to 119.42 yen in foreign trading from 120.95 in New York on Monday.
Central bank officials worldwide sought to assure markets that the money spigot will be turned on to keep the financial system functioning. That could mean that the Fed quickly will announce new interest rate cuts, after already cutting its key short-term rate seven times this year, to the current 3.5%, experts said.
“The Federal Reserve system is open and operating,” the Fed said in a statement. “The discount [lending] window is available to meet liquidity needs.”
The Federal Reserve Bank of New York implemented a contingency plan for its employees, said Steve Malin, a spokesman for the bank. Some employees were moved to Richmond, Va., where they can access the bank’s computers.
The FedWire, which is operated by the central bank and is used to process large dollar and securities transfers, is working out of the New York Fed’s East Rutherford, N.J., location, Malin said.
Despite moving to an unspecified “secure location,” Treasury officials, including Deputy Treasury Secretary Ken Dam, continued to stay in contact with other agencies, a spokesman said.
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Bloomberg News and Reuters were used in compiling this report.
