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Markets tumble as US auto bailout collapses

Friday, December 12, 2008 , Posted by Linda at 10:30 AM

WASHINGTON (AFP) – The US Senate failed to agree on a plan to rescue automakers on the brink of bankruptcy, battering Asian stock markets Friday and sending the dollar to a 13-year low.

The European Union was also divided on a proposed stimulus package as bad economic news kept mounting, with Bank of America slashing up to 35,000 jobs to weather the worst financial crisis since the Great Depression.

Markets tumble as US auto bailout collapses AFP – A passerby looks at an electronic share prices board in front of a securities firm in Tokyo on December …

Asian stocks fell as the US Senate failed to reach a deal to salvage Detroit's Big Three automakers.

Tokyo stocks tumbled more than five percent in early afternoon trade, while Hong Kong was down 6.5 percent. The dollar slumped to a below 90 yen for the first time since 1995.

Hours of late-night negotiations among US senators collapsed late Thursday, despite news that General Motors had hired lawyers for a potential bankruptcy filing.

"I'm terribly disappointed that we are not able to arrive at a conclusion," said Senate Majority Leader Harry Reid, a member of president-elect Barack Obama's Democratic Party.

"We have tried very, very hard to arrive at a point where we could legislate for the automobile industry."

A 14-billion-dollar deal passed the House of Representatives this week but it faced stiff opposition from senators in President George W. Bush's Republican Party.

The Republicans had demanded that wages from US automakers be brought in line next year with those paid by foreign automakers, which faces resistance from the US autoworkers' union.

Some Republicans also opposed the deal out of principle, saying it would effectively nationalise one of the country's top private industries.

The plan would provide GM and Chrysler loans to operate until March 31 and in turn force them to craft major restructuring plans that includes paying off the government aid. The third US auto giant, Ford Motor Co., says it faces no immediate credit crisis.

Bush and Obama both warned that the US economy could not afford more sweeping job losses.

"We cannot simply stand by and watch this industry collapse. Doing so would lead to a devastating ripple effect throughout our economy," Obama said in Chicago.

The layoffs by the Bank of America were only the latest by major companies. US banking giant Citigroup last month said it was cutting a near-record 50,000 jobs worldwide.

In Sweden, the government announced its own 28-billion-kronor (3.5-billion-dollar) package to help its beleaguered automotive sector, including the national arms of carmakers Volvo and Saab.

In Brussels, European Union leaders were set to open a second and final day of a crunch summit on a 200-billion-euro (260-billion-dollar) stimulus package to fight the region's recession. They were also discussing action on climate change.

The summit opened Thursday on a sour note as German Finance Minister Peer Steinbruck blasted Britain for borrowing money to finance state spending and denounced the idea of "tossing around billions" of euros.

British Prime Minister Gordon Brown rejected the criticism. Brown and French President Nicolas Sarkozy, the EU's outgoing chair, both urged Germany -- Europe's largest economy -- to boost domestic consumption, but Berlin has refused to indulge in borrowing and deficit spending.

Japan was also reportedly set Friday to raise its own stimulus package to 40 trillion yen (437 billion dollars) from 26.9 trillion yen as the outlook rapidly worsens in Asia's largest economy.

Japan's Sharp Corp. said it was cutting 380 domestic jobs due to the economic downturn, days after Sony Corp. said it was slashing more than 8,000 regular jobs and the same number of temporary or contract posts.

Japan's Chief Cabinet Secretary Takeo Kawamura said Friday the government would ask companies "not to dismiss temporary workers so easily" and to "be cautious and consider other options when they plan to cut jobs for regular workers."

Brazil also announced a package of fiscal measures Thursday costing more than 13 billion dollars that it hopes will mitigate the effects of the global economic crisis.

But International Monetary Fund chief Dominique Strauss-Kahn warned that the financial crisis would worsen in 2009.

On a visit to Costa Rica, he said: "2008 was a difficult year in the world economy but in no way can we expect 2009 to be better."

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