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World Stocks Slump As Investors Suffer Bout Of Nerves

AIG has posted the biggest quarterly loss in U.S. corporate history.
(RFE/RL) -- Stocks and shares on world markets are in turmoil again, driven downward by investor alarm over news that big business entities in the United States and Britain are in deeper trouble than previously realized.

Stocks on the Tokyo Stock Exchange, the key bourse in Asia, hovered close to a 25-year low on bad news from New York and London. Most other Asian markets followed Tokyo's downward slide.

Earlier, in New York, the Dow Jones index on Wall Street closed at a 12-year low, and in Europe, the FTSEurofirst index fell to within a few points of its all-time low, recorded in 2003.

Two specific events touched off the bout of selling.

One was the revelation on March 2 that the major U.S. insurance group AIG had recorded the biggest quarterly loss in U.S. corporate history -- a massive $61.7 billion. That follows AIG's total losses for 2008 of close to $100 billion.

The U.S. government has had to step in for the second time to rescue AIG from collapse with a big capital injection, this time of some $30 billion.

The affair has shocked investors, who have been eagerly scanning the economic scene for signs that the worst of the credit crisis is past.

Art Hogan, the chief market strategist for brokers Jeffries and Company, told Reuters on March 2 that the news from AIG points in the opposite direction.

"AIG reminded us today that a lot of financial institutions need more money. They need more capital to the ongoing entities," Hogan says. "AIG needs $30 billion more just to remain in place until we can divide the company up into multiple pieces and, hopefully, sell them off."

'Taking The Steps Necessary'

AIG's continuing troubles are seen as potentially big enough to destabilize the fragile U.S. financial system before the government's $800 billion economic stimulus package has had time to take hold.

White House spokesman Robert Gibbs, speaking March 2 at a news briefing in Washington, said the government wants to eliminate this threat.

"We are focused on taking the steps necessary to restructure AIG so that, in the long run, it no longer poses the type of systemic threat that it poses right now," Gibbs said. "And I think today's actions were critical in that restructure."

The second event that scared the world markets was the announcement in London that Europe's biggest bank, Britain's HSBC, suffered a 70-percent drop in earnings last year, and said it is seeking to raise some $18 billion in a share issue to provide working capital.

The two events, coupled together, gave the impression that global economic conditions are deteriorating at a faster pace than previously thought.

In Japan, matters were not helped by the announcement that the finance arm of Toyota, the world's biggest car maker, is asking the government for a $2 billion loan. As world car sales plummet, Toyota is suffering its first trading loss in 60 years.

Analyst Lucinda Chan, of Macquarie Private Wealth in Sydney, says international markets are now being driven by fear, and she expects more pain before there is a turnaround. However, prices drifted higher today on the opening of European bourses.