Stocks plunge despite Credit Suisse buyout, central banks' pledge

NEW YORK - Equities sank Monday on fears about the financial sector, despite news of UBS's takeover of embattled Credit Suisse and central bank pledges to provide liquidity to troubled lenders.

READ: UBS takes over Credit Suisse in move to calm the markets

The losses came ahead of the Federal Reserve's latest policy meeting this week, with speculation mounting that it will pause its interest rate hikes to provide some stability to markets.

Asian traders tracked Friday's losses in New York and Europe.

Hong Kong plummeted 2.7 percent, with heavyweight HSBC off nearly six percent on worries about its exposure to risky bonds related to Credit Suisse. Standard Chartered also sank.

The losses came even as the city's de facto central bank said its banking sector had "insignificant" exposure to Credit Suisse.

Other regional bank shares were also hit, including Japan's Mitsubishi UFJ Financial, National Australia Bank and India's ICICI.

The Japanese government said the country's "financial organisations on the whole have ample liquidity and capital, and the financial market is stable overall".

And ahead of the open in Europe, France's central bank chief said Credit Suisse's woes "don't concern" European banks.

London, Frankfurt and Paris all fell in early Monday trade.

Tokyo, Sydney, Seoul and Mumbai were also in the red.

Shanghai rose after the Chinese central bank cut the amount of cash banks must keep in reserve, hoping to boost the country's economy.

- Eyes on the Fed -

The collapse this month of regional lenders Silicon Valley Bank, Signature Bank and Silvergate sparked fears of contagion as worried customers withdrew cash.

It led US authorities last week to promise support for other lenders and depositors, while Wall Street titans including JP Morgan, Bank of America and Citigroup pledged to inject $30 billion into under-pressure lender First Republic Bank.

However, fears of another financial crisis flared again when trouble emerged at Credit Suisse, Switzerland's second-biggest bank.

On Sunday UBS -- Switzerland's biggest bank -- said it would buy Credit Suisse for $3.25 billion following crunch talks in hopes of stopping a wider international banking crisis.

The move was welcomed in Washington, Frankfurt and London.

Meanwhile, the Fed and the central banks of Canada, Britain, Japan, the European Union and Switzerland said they would launch a coordinated effort on Monday to improve banks' access to liquidity.

"Investors are likely keeping a look over their shoulder for the next disaster in a high-interest rate (and inflationary) environment, so at best we might see markets recover some of last week's losses," said Matt Simpson at City Index.

Traders are now nervously awaiting the Fed's next policy meeting, which ends Wednesday.

They were already in a downbeat mood before the latest crisis erupted as they contemplated more rate hikes to rein in stubbornly high inflation.

There is a debate about whether the Fed will continue lifting, as the collapse of SVB has been widely linked to the sharp rise in borrowing costs over the past year.

Some observers expect at least one more increase but possibly a hold afterwards, while there is a growing belief that cuts could be announced before the end of the year, despite prices still rising faster than the Fed would like.

"It is not at all clear that avoiding a rate hike would even help address the financial troubles in the banking system," said 22V Research's Gerard MacDonell.

"For the Fed to hold off on Wednesday might send a signal of panic. It might also lead to a further intensification of inflation pressures and more bond market volatility down the road."

Oil prices extended the big losses suffered last week on worries about demand as traders fret over a possible recession.

- Key figures around 0810 GMT -

Tokyo - Nikkei 225: DOWN 1.4 percent at 26,945.67 (close)

Hong Kong - Hang Seng Index: DOWN 2.7 percent at 19,000.71 (close)

Shanghai - Composite: DOWN 0.5 percent at 3,234.91 (close)

London - FTSE 100: DOWN 1.1 percent at 7,258.31

Euro/dollar: DOWN at $1.0663 from $1.0671 on Friday

Dollar/yen: DOWN at 131.03 yen from 131.80 yen 

Pound/dollar: UP at $1.2188 from $1.2174

Euro/pound: DOWN at 87.48 pence from 87.59 pence

West Texas Intermediate: DOWN 2.9 percent at $64.84 per barrel

Brent North Sea crude: DOWN 2.7 percent at $71.00 per barrel

New York - Dow: DOWN 1.2 percent at 31,861.98 (close)