Australia can withstand market shocks: PM

Australia's prime minister and treasurer on Thursday both talked up the economy's ability to withstand the shockwaves from the US credit crunch as the local stockmarket plunged.

In mid-session, the benchmark SP/ASX 200 index was down 5.0 percent as investors dumped shares on fears over the subprime mortgage sector in the US.

"My assessment is the Australian economy remains very strong, and we should be reassured about that," Prime Minister John Howard told journalists in Canberra. Howard said Australia did not have anything like the same number of subprime loans as the US, although the number had grown. "Yes there is an adjustment going on and there is no way we can escape some impact, we have seen it already, world financial markets are inter-connected," he said.

"Our financial institutions are very stable and the underpinnings are such that we are better able to handle changes and shocks of this kind than we would otherwise be," he said. Treasurer Peter Costello said that while the fallout on financial markets from defaults in the US subprime mortgage market was significant, local banks were well capitalised.

"The banking sector is very well capitalised, there is a lot of liquidity and we have in place arrangements to ensure there is sufficient liquidity," Costello told the Australian Broadcasting Corporation.

"The fall-out from the United States is significant, it is not only affecting global equity markets, but it is affecting credit markets, and it is leading to a re-pricing of risk," he said.

But he did not expect higher borrowing costs in the US would result in higher mortgage rates.

"There is no reason whatsoever why there should be any change in relation to the banking system," he said.

"The banks are well capitalised, profitable and there is no reason whatsoever that they should be affected."

AFP

Taiwan names computer chief as APEC envoy

TAiwan President Chen Shui-bian has named a business leader as his envoy to the APEC summit in Australia, his office said Thursday, after his previous choice was reportedly blocked by China.

Stan Shih, the founder of leading personal computer vendor Acer Inc, will represent Taiwan at the Asia-Pacific summit in Sydney from September 8-9.

Taiwanese presidents, barred from APEC summits due to objections by China which regards the island as part of its territory, are usually represented by local senior economic advisers or business leaders.

"Chairman Shih is a distinguished entrepre- neur ... and his achievement is widely recognised by the business sector and the international community," a presidential statement said.

However, Shih was not the president's first choice, according to reports in Taipei which said Chen originally picked former vice premier Tsai Ing-wen.

Local media said Beijing opposed Tsai because she was the architect of a "special state-to-state" policy theory adopted by Taiwan's then president in 1999.

Beijing regarded that definition as a move toward independence.

Taiwan was forced to use the name Chinese Taipei when joining APEC in 1991 after Beijing insisted it had no right to join world bodies as a country.

China and Taiwan split at the end of a civil war in 1949.

AFP

Japanese stocks plunge below 16,000 points

Japanese stocks plunged below the key 16,000 points level Thursday for the first time in almost nine months as a wave of selling hit Asian markets, dealers said.

Tokyo's benchmark Nikkei-225 index slumped by as much as 616.10 points or 3.74 percent to 15,859.50, the lowest level since November 28. The index later recovered slightly to 15,911.00 points, down 564.60 points or 3.43 percent on the day.

Stock markets around Asia suffered sharp plunges as investors remained extemely nervous that more bad news might emerge from US credit markets.

Investors have been shifting funds into less risky assets in recent days as fears that a credit crunch is looming intensifies.

Among the hardest-hit were banking stocks, because of concern about the exposure of Japanese banks to the subprime mortgage market in the US.

AFP

Fed opens cash spigot as mortgage lenders reel from credit crisis

The Federal Res- erve injected more cash into the stressed US financial system Wednesday as some mortgage lenders said they were reeling from a broadening credit crisis.

A credit crunch and increased stock market volatility has hit some major Wall Street banks in the past week, and tightening credit conditions appear to be swamping the wider business landscape. Home improvement retailer Home Depot said it had delayed a potential 10.3 billion dollar sale of its wholesale supply business to three private equity firms until late August.

But financial strategists are urging rattled investors not to panic amid the ongoing turbulence, as the Fed stepped in again to shore up confidence and keep the banking system from gumming up.

The central bank said it had pumped seven billion dollars into the financial system, in a vast 69-billion-dollar intervention operation since Thursday.

The Fed acted after the chief executive of Thornburg Mortgage, Larry Goldstone, told the CNBC business television channel late Tuesday that the industry was experiencing a "credit crisis." Thornburg, a nationwide lender, has seen its stock plummet and its finances ravaged by the credit market upheavals.

Goldstone voiced confidence that Thornburg would not go out of business like dozens of other US mortgage firms in recent months as mortgage-related losses mount. KKR Financial Holdings, an affiliate of private equity giant Kohlberg Kravis Roberts Co., said Wednesday it would lose 40 million dollars from the sale of a mortgage portfolio, but warned its losses may swell to 290 million dollars.

A persistent housing slump and rising property foreclosures have unleashed a financial storm which has seen investors shun mortgage-backed securities and other risky investments.

AFP