AP

OCTOBER 18, 08:02 EDT

Asian Stock Markets Close Lower

HONG KONG (AP)  Asian stock markets suffered some sharp plunges Wednesday, with the Tokyo and Hong Kong markets tumbling as investors unloaded technology issues.

Tokyo's key share index dropped to its lowest close in 19 months after a dip on Wall Street highlighted concerns that technology stocks may be overvalued.

The 225-issue Nikkei Stock Average fell 467.74 points, or 3.1 percent, to 14,872.48. That was its lowest close since March 8, 1999, when it finished at 14,779.05.

In Hong Kong, shares plunged, with technology and telecommunication companies taking a big hit on a variety of overseas worries, including rising oil prices and weakness in European telecom shares.

The Hang Seng Index fell 2.8 percent, or 414.91 points, to 14,458.52, its lowest close since May 30, when the index finished at 13,990.90. The Hang Seng slipped 0.7 percent Tuesday.

Many Asian traders were worried by the latest fall in the tech-heavy Nasdaq composite index, which shed 2.3 percent in New York trading on Tuesday. Some smaller markets finished higher, however.

In currency dealings, the U.S. dollar fell slightly against the Japanese yen.

The dollar bought 108.04 yen in late Tokyo trading, down 0.16 yen from Tuesday, but above its level of 107.99 yen from late Tuesday in New York.

Elsewhere:

BANGKOK: Thai prices rose as investors bought shares of banking, chemical and entertainment companies. The JSX Composite index rose 8.23 points, or 3.2 percent, to 268.18.

JAKARTA: Indonesian shares fell slightly as investors cashed in on recent gains. The JSX Composite index slipped 0.491 points, or 0.1 percent at 416.948.

KUALA LUMPUR: Shares rose slightly on buying support from local institutional funds. The Composite Index climbed 6.83 points, or 0.9 percent, to 772.03.

MANILA: Philippine stocks finished at their lowest point in about two years on concerns over a payoff scandal that has opposition politicians seeking to impeach President Joseph Estrada. The Philippine Stock Exchange Index fell 8.08 points, or 0.6 percent, to 1,263.67.

SEOUL: South Korean stocks rose slightly, buoyed by the announcement of the government's stock market stabilization plans. The Korea Composite Stock Exchange rose 1.32 points, or 0.3 percent, to 514.17.

SINGAPORE: Shares rose on gains in banking and technology stocks. The Straits Times Index rose 10.11 points, or 0.6 percent, to 1,828.56.

SYDNEY: Australian prices fell, with sentiment weakened by a 7.7-percent price plunge in media giant News Corp. The All Ordinaries Index dropped 35.6 points, or 1.1 percent, to 3,180.40.

TAIPEI: Taiwan shares closed at a 54-month low Wednesday as investors scrambled to dump technology stocks after the Nasdaq's 2.3 percent plunge. The Weighted Price Index of the Taiwan Stock Exchange lost 270.13 points, or 4.7 percent, at 5,432.23.

WELLINGTON: New Zealand shares rose, as market heavyweight Telecom Corp. advanced on speculation it is the leading contender to buy the mobile assets of Australian telecommunications company Cable-and-Wireless Optus. The NZSE-40 capital index rose 14.80 points, or 0.8 percent, at 1,917.86.

-- Rachel Gibson (rgibson@hotmail.com), October 18, 2000

Answers

news24

17/10/2000 23:38 - (SA)

Bomb rocks rand Maarten Mittner

Johannesburg - A triple dose of bad news sent the rand to new record lows on Wednesday as the Cape Town bomb blast, the tense situation in Zimbabwe and higher oil prices battered the beleagured currency.

At midday the rand hit an all-time low of 7.6050 agains the dollar.

A bomb exploded outside offices of opposition Democratic Party in a Cape Town suburb, injuring one woman.

"The euro has come off from earlier highs and the bomb blast in Cape Town has provided an excuse for traders in London to sell," said one Johannesburg-based trader.

Oil, a major contributor to domestic inflation, rocked higher on unexpected draws in US oil inventories. Dec IPE Brent traded up 52 cents at $31.65/barrel.

In Zimbabwe, stone-throwing youths blocked the main road from Harare to Bulawayo after two days of riots against soaring food prices.

The rand also lost ground on the crosses. Last bid at 10.9630 against sterling from opening 10.909. Bid at 6.4750 against euro from 6.4300 in early trade. Euro was last bid at 85.35 US cents.

REPO ADDS TO NERVES

The market was also nervously looking to the Reserve Bank's repo auction which may lead to further hikes in the repo-rate, which will unavoidably lead to increases in bank lending rates.

The Reserve Bank met the liquidity needs of banks on Wednesday, saying that it was happy with a repo of 12%.

None of the banks raised their lending rates on Tuesday in reaction to the 0.25% rise in the repo-rate, but they warned that they are keeping an eye on the situation and that an increase is not out of the question.

Fears that inflation is getting out of control were temporarily alleviated when Statistics South Africa announced that last month's inflation rate was the same as that of the previous month, but economists warn that the weak rand may further pressure interest rates.

The rand dropped sharply on Monday night in reaction to news that the Reserve Bank wished to force a rise in the repo-rate and on Tuesday morning reached a general low of R7.59 against the dollar.

The currency later strengthened to R7.5290 in reaction to the good news about inflation, but weakened again to R7.56. By late Tuesday evening the currency traded at R7.5450 to the dollar.

A currency usually responds positively to a hike in interest rates, because it attracts more international capital, but the rand was hurt by fears that high interest rates could further hamper sluggish economic growth.

An economist at ABSA Corporate Bank, Chris Hart, expects the rand to be increasingly unstable and may even weaken further.

He attributes this to uncertainty arising from the Reserve Bank's behaviour, as well as the dollar, which is still performing strongly.

"If the Reserve Bank wanted to protect the rand through its actions, it isn't working. The possibility exists that the rand will soon test levels of R7.70 against the dollar."

The repo-rate was fixed at the expected 12% on Tuesday, against Monday's 11.75%, after the Reserve Bank kept its promise and did not fulfil the need of the money market in full.

A liquidity need was estimated at R8.7bn and the Reserve Bank provided only R8.65bn.

It is understood that most large commercial banks considered raising their lending rates on Tuesday. However, it was decided that a wait-and-see attitude was best.

Commercial banks are waiting to see if there are further increases in the repo-rate. If the repo-rate rises with 25 basis points within the foreseeable future, lending rates will definitely increase. Economists said on Tuesday that, "Any further hikes in the repo-rate depend on the performance of the rand. If it weakens further, the repo-rate will be raised further."

INFLATION BETTER THAN EXPECTED Hart says, "It appears that the hike in the repo-rate was a consequence of the weak rand and not of underlying inflationary pressure in the economy."

"Higher fuel and food prices are factors that drive inflation, which is largely independent of any movement in interest rates and these should not affect it in the short term."

The better-than-expected inflation figure led to great uncertainty concerning the Reserve Bank's rationale.

Statistics South Africa announced on Tuesday that mainline inflation climbed in September, on an annual basis, by 6.8%, which is the same as in August. Economists participating in Reuters' consensus forecasts expected a rise of 8.2%.

The Reserve Bank defended its decision to raise interest rates on Monday by expressing its concern over possible inflationary results of higher petrol prices.

The inflation figure for September, however, indicates the negative consequences of this is not as big at this stage as was initially expected.

An economist with Old Mutual Asset Management, Rian le Roux, says, "The figures are a clear indication that inflation is mainly driven by the higher petrol prices. It also indicates that, regardless of the Reserve Bank's fears, there are few signs of inflationary pressure in the underlying economy."

Economists still expect upward pressure on inflation for the rest of the year.

An economist with PSG Investment Bank, Noelani King, says, "Mainline inflation is expected to be 8% by the end of the year. This means that it will still rise by a full percentage point."

The CPIX is expected to end the year at between 8.5% and 9% which means that the rate has to fall by at least 2.5 to 3 percentage points to meet inflation targets of between 3% and 6% in 2002.

-- Rachel Gibson (rgibson@hotmail.com), October 18, 2000.