South Korea resorted to a record interest rate cut and Japan called an emergency meeting after shares hit a 26-year low as Asian governments scrambled to prevent stricken markets from sucking economies into a global slump.
Australia's central bank said it had intervened to support its currency in another sign that policymakers are reaching beyond troubled banks now that the financial crisis has shattered investor confidence, and threatens jobs and corporate sales.
Japanese Prime Minister Taro Aso called an emergency meeting after the Nikkei share average slid to 26 year low, hitting the biggest banks in a financial system that has largest escaped the worst of the crisis. Three banks were looking to raise cash to offset stock market losses, Japanese media reported.
Developing nations have been turning to the International Monetary Fund for help to stave off the worst global financial crisis in 80 years. Hungary had reached an agreement to get a "substantial financing package" in the next few days that will include financing by the European Union and some individual European governments, the IMF said. [ID:nN26287887]
The IMF agreed a $16.5 billion loan package for Ukraine on Sunday.
The increasingly assertive policy response had little immediate impact on markets. Asian shares fell on Monday as investors scrambled for assets they see as relatively safe. The yen, government bonds and gold climbed.
"Policy-makers have been unable to calm the storm, although the increasingly aggressive response offers some hope," said Citigroup analyst Robert Buckland."
STERNEST TEST
South Korean policymakers took the most their dramatic measures yet in a months long battle to buttress confidence in an economy facing its sternest test since the Asian financial crisis a decade ago.
The Bank of Korea cut its main interest rate by 75 basis points to 4.25 percent in an unscheduled meeting. The rate cut was the biggest on record and only the second emergency move since the bank adopted its current monetary policy system; the first was after the Sept. 11, 2001 attacks on the United States.
"Their priority is to minimise the impact of the crisis on growth and on volatility. Eventually this could also help the markets," said Sebastien Barbe, senior economist and foreign exchange strategist with Calyon in Hong Kong.
President Lee Myung-bak pledged to increase government spending and to cut taxes to support Asia's fourth largest economy, which grew at the slowest quarterly pace in four years during the last quarter.
The Bank of Korea also cut rates earlier this month after major central banks including the Federal Reserve, the European Central Bank and the Bank of England delivered an unprecedented coordinated rate cut to halt the dizzying slide in markets.
The U.S. Federal Reserve is widely expected to announce a 50 basis-point cut in overnight rates on Wednesday that would take its benchmark to 1 percent, the lowest since June 2004. Some analysts expect a reduction to 0.75 percent.
U.S. economic growth is buckling under the impact of the crisis triggered last year by a meltdown in the U.S. mortgage market.
Advance third-quarter U.S. economic growth data due on Thursday is expected to show a 0.5 percent contraction in gross domestic product after 2.8 percent growth the previous quarter.
Most industrialised nations appear headed for recession and the picture looks set to darken after a series of profit warnings major international companies last week, including Japan's consumer electronics maker Sony, French carmaker PSA Peugeot Citroen and online retailer Amazon.com.
"The earnings downturn looks to have much further to go," said Citigroup's Buckland."
GOVERNMENTS REACH INTO MARKETS
In Japan, the world's second largest economy, the stakes rose as the country's largest banks began showing signs of stress.
Shares of Mitsubishi UFJ Financial Group and other big Japanese banks tumbled more than 10 percent on Monday, hit by concern they may need to raise billions of dollars each to replenish capital lost in the stock market slump.
Although Japanese banks have so far avoided the credit losses that tore through Wall Street, they have been hit hard by the volatile domestic stock market and weakening economy. The Nikkei is down 22 percent so far this month.
Mitsubishi UFJ, Japan's top lender, is considering raising up to 1 trillion yen ($10.8 billion) to shore up its capital, people familiar with the matter have said. [ID:nT73810]
Mizuho Financial Group, Japan's second-largest bank, and third-ranked Sumitomo Mitsui Financial Group, are both looking to raise as much as 500 billion yen ($5.4 billion), newspapers reported on Monday.
And Japanese exporters, already facing their toughest markets in decades, fear a surging yen may pummel demand for their products. The yen climbed back near a 13-year peak against the dollar on Monday.
"I see rapid moves in the yen as excessive," Finance Minister Shoichi Nakagawa told a news conference. "I'm watching currency markets with great interest."
Japan has not intervened in currency markets since 2004.
Australia's central bank stepped into the foreign exchange market to support its plummeting currency on Friday, the Reserve Bank of Australia said on Monday, The Aussie slid to five-year lows against the U.S. dollar and its deepest-ever trough against the yen.
"The RBA has a good history of providing liquidity during period of erratic price movements in the Aussie dollar and I do not the see the last action as more than that," said Robert Rennie, chief currency strategist at Westpac.
The last time the RBA moved to shore up the currency was in August 2007, when the melt-down in U.S. subprime mortgages first exploded into a global credit crisis. The Australian dollar was up more than 1 percent to $0.6240, but has dropped 29 percent so far this year.
Investors braced for steps by the Japanese government to stabilise markets, including purchases of bank stocks by a government body, tougher rules on short selling and changes in mark-to-market accounting rules, the Nikkei business daily reported on Sunday.
In the United States, more banks began to get or seek money from the government. Washington Federal Inc said on Sunday it would get a $200 million cash infusion from the U.S. government, while Fifth Third Bancorp announced it had applied for $3.4 billion under the capital purchase program.
A source familiar with the Treasury Department's thinking told Reuters on Sunday that KeyCorp, Zions Bancorp and Capital One Financial Corp were some of the banks that will receive cash under the programme.
Four other banks, including PNC Financial Services Group Inc <PNC.N>, announced Friday they would participate in the second round of capital injections under the U.S. government's bailout program.
Governments have so far pledged about $4 trillion to support banks and restart money markets to try to stem the crisis and are considering tougher financial rules to guard against any repeat.
