Special Correspondent

But worries persist about the health of the global financial system

Mumbai: Global markets remained wobbly on Wednesday even as the $85-billion U.S. government bailout of America’s largest insurer by assets, American International Group (AIG), calmed nerves somewhat. The U.S. Federal Reserve agreed to extend a two-year loan to the troubled AIG in exchange for a 79.9 per cent equity stake in the company and a change in the top management.

Markets in Hong Kong, Tokyo, Singapore and other parts of Asia recovered but gave up some or all of the gains as worries persisted about the health of the global financial system. AIG has a strong footprint in Asia with millions of policyholders in south-east Asia, China and Australia. The Tokyo market closed 1.2 per cent higher but others such as Hong Kong slipped 3.6 per cent and Shanghai 2.9 per cent.

Sentiment in the Indian market stayed depressed with the BSE Sensitive Index closing down 1.89 per cent. ICICI Bank fell a further 5.25 per cent during the day closing at Rs. 560.30 on rumours (subsequently stoutly denied by the bank) that top managers were selling its shares in the market. The stock shed almost 11 per cent in the last two days.

The rupee rebounded from its two-year low of Tuesday versus the dollar gaining 54 paise to Rs. 46.34 as the Reserve Bank of India intervened to provide dollars to the market. The rupee has depreciated over 15 per cent against the dollar since April this year.

Russia faced its biggest financial crisis in a decade as inter-bank lending wound down despite the government injecting funds into the system. Trading was suspended in its two stock exchanges after one of them suffered a 10 per cent fall in its index in just an hour’s trading. The government provided $44 billion to its three biggest banks to reassure the markets.

European market indices were marginally up in early trading. Sentiment received a boost as Britain’s Lloyds TSB Group plc was reported to be in talks to buy the troubled HBOS, the country’s largest mortgage lender. The spokespersons of the two banks, however, refused to confirm or deny the news.

Commodity markets rebounded with gold and crude oil registering handsome gains. Crude oil was up $3.14 to $93.29 a barrel in morning trade in New York as the AIG bailout was seen as a relief for the global financial system. Gold was up just under one per cent at $786.38 an ounce.

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