US auto bailout crashes; stocks, dollar fall

Videos
Photos

(Agencies)
Updated: 2008-12-12 16:52

SINGAPORE - US talks on a $14 billion rescue package for America's top auto makers collapsed, renewing fears for a global economy already facing its deepest crisis in decades and sending investors fleeing from risky assets.

The bailout's failure -- for this year at least -- in late-night talks threatened reverberations in the global supply chain and financial markets, as well as raising fears of an industry collapse that would jeopardise countless jobs.

The yen shot to a 13-year high against a falling dollar -- feeding concern Japanese officials would act to stabilise the currency -- and Asian stock markets tumbled.

"It's going to be a very, very bad Christmas for a lot of people based on what takes place here tonight," said US Senate Majority Leader Harry Reid, a Democrat who favoured the bailout.

"I dread looking at Wall Street tomorrow. It's not going to be a pretty sight."

As the Washington talks collapsed, countries and regional blocs elsewhere were pushing forward with their latest efforts to stave off a crisis that has pushed the United States, the euro zone and Japan into recession, brought some banks to their knees and is threatening a sharp rise in global unemployment.

In Asia, Japan was set to unveil a $437 billion stimulus package, the Yomiuri newspaper reported. Prime Minister Taro Aso has scheduled a media conference for 0900 GMT.

South Korea announced currency swaps deals with China and Japan to deepen its pool of dollar liquidity.

The US House of Representatives had agreed to the bailout for the auto makers but it could not be driven through the Senate.

General Motors Corp and Chrysler LLC had sought billions of dollars in immediate aid to avert collapse, while Ford Motor Co wanted a hefty line of credit.

Reid said negotiators were not able to get a compromise plan over the finish line. "It's over with," Reid said.

The failure of Senate negotiators to come to an agreement shifted the focus back on to the White House in the dying days of President George W. Bush's administration.

The White House said it was weighing its options and described the failure of the talks as disappointing.

The Bush team has so far resisted demands by Democrats to use some of the Treasury Department's $700 billion bailout fund for financial institutions to help the struggling car makers.

OUT OF GAS

Tokyo's Nikkei average and stocks elsewhere in Asia fell 5 percent and more after the bailout package ran out of gas. The region's auto stocks went into freefall, with Toyota Motor Corp, Nissan Motor Co and others extending earlier falls to more than 10 percent

US stock futures were also down and European shares were set to follow.

The dollar was pushed below the sensitive 90 yen level, its weakest in 13 years. The yen often gains as a relative currency safe haven in times of risk aversion.

US government debt, another haven for fretful investors, also rose. US crude oil prices, which earlier slipped for the first time in three days, almost doubled their losses after the bailout collapse.

"Everybody is a bit jittery. When you get news like this, there will be flight to safety, which is from emerging Asia to the dollar and yen," said Alvin Liew, Southeast Asia economist at Standard Chartered Bank in Singapore.

Reid had hoped that an agreement could be reached on a recalibrated rescue package, but General Motors, Chrysler and Ford limped back to Detroit empty-handed.

The compromise plan would have granted them loans under stricter conditions than those favoured by Democrats and Bush's White House.

The failure of any one of the three would echo not only through the global supply chain but in financial markets as well.

Senator Christopher Dodd, a Connecticut Democrat, said the main issue of disagreement was a deadline for Detroit autoworkers' pay to reach parity with foreign manufacturers.

STIMULUS

In Brussels, a European Union summit will commit to an economic stimulus package worth about 1.5 percent of total EU output, according to a final draft text obtained by Reuters before the start of a second day talks among bloc members.

Yomiuri did not cite any sources in its report of the stimulus package for Japan's recession-hit economy. Although details were sketchy, not all of the $437 billion - about 10 percent of GDP - was earmarked for spending.

Part of the money would be used to expand the amount of public funds set aside to pre-emptively recapitalise financial institutions to 12 trillion yen ($131 billion) from 2 trillion yen, the paper said.

South Korea's currency swap deals come before leaders from South Korea, Japan and China meet in Japan on Saturday. The deals are meant to help South Korea cope with a credit crunch and a sharply slowing economy.

With currency reserves at their lowest levels in almost four years, South Korea has already been dipping into a $30 billion swap line with the US Federal Reserve and has smaller swap deals with some Southeast Asian central banks.