U.S. automakers sought billions of dollars of extra government funds when they unveiled survival plans but deepening fears about global growth pushed share markets down on Wednesday and sent investors searching for safe havens.
General Motors Corp and Chrysler LLC scrambled to meet deadlines to detail their plans on Tuesday, the day President Barack Obama signed into law a $787 billion 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 were also sceptical U.S. auto makers would be able to return to profitability without first going through bankruptcy reorganisation possibly meaning 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.
GM and Chrysler asked for almost $22 billion in extra government aid, on top of the $17.4 billion they have already received, leaving other analysts wondering whether 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 is seeking up to $30 billion in government help — twice its original estimate — and warned it could run out of cash as early as next month. Its shares fell 12.8 percent on Tuesday.
Chrysler, the number 3 U.S. automaker, wants another $5 billion and 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, but says it wants a strong and viable U.S. automotive industry.
BANK FEARS
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.
Asian shares hit their lowest level this month and regional bonds edged higher as investors went looking for safe havens.
The MSCI index of Asia-Pacific stocks outside Japan fell about 1.4 percent and was heading for its sixth straight losing session. This was after the S&P 500 and the Dow Jones average in the United States hit their lowest marks since bear market lows in November.
Indexes in Australia and Shanghai fell more than 2 percent, while Japan's Nikkei stock average and shares in South Korea and Hong Kong were all down more than 1 percent each.
The euro fell to a new 2-½ 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 gained as investors sought safer assets. March 10-year Japanese government bond futures rose 0.37 point to 139.75, while the benchmark 10-year yield dropped 3 basis points to 1.250 percent.
Gold was trading around $968 an ounce after touching a high of $973.20 on Tuesday, its highest since July 22.
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.
In Taiwan, a source close to the government said GDP plunged 8.36 percent in the fourth quarter of 2008, its worst on record, sending its economy into recession with a second consecutive quarter of contraction.
AUSTRALIA AN EXCEPTION
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.
Latest retail data showed sales adjusted for inflation rose 0.8 percent in the fourth quarter to A$53.5 billion ($34.1 billion), the biggest rise in a year but still shy of forecasts.
Australian investors are now waiting on the next quarterly GDP figures due on March 4.
That report is 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, already slashed 4 percentage points since September to a record low of 3.25 percent.
