Washington’s rescue plan for two mortgage giants fails to check fall

HONG KONG: Asian and European stock markets fell sharply on Tuesday as investor confidence in the U.S. financial system eroded even further despite a government-backed plan to help the beleaguered mortgage financiers Fannie Mae and Freddie Mac.

While losses spread across most sectors in Asia, financials were hit particularly hard as investors worried that trouble in the U.S. financial markets would spill over to Asia.

Japanese traders were rattled by a local business newspaper report that the country’s top three banks hold a combined 4.7 trillion yen ($44 billion) in Fannie Mae and Freddie Mac debt. Another newspaper report unnerved Taiwan’s market with news that at least two leading financial institutions have invested in the mortgage giants, and the country’s central bank may also have purchased their bonds.

Rumours in China

In China, rumours were circulating that the government had also invested in Fannie and Freddie bonds.

The two government-chartered companies received a boost on Sunday when the U.S. central bank and Treasury Department promised to step in with short-term funding and other aid should mortgage losses mount. Together, the companies hold or back about half the outstanding mortgages in the U.S. — AP

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