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Recession Fears Prompt Asian Stock Sell-Off

Asia’s stock markets fell sharply in Friday trading amid concerns about a possible global recession.

South Korea’s finance ministry held emergency meetings with the country’s central bank and other entities to discuss the plunge in value of the country’s key stock indexes and its currency, the won.

The KOSPI was off 5.75 percent to close at its lowest level since July of last year. The big drop in the South Korean index came despite a continuing ban by authorities on short selling of stocks.

Shim Jae-yob, an equities strategist at the securities brokerage firm Shinhan Investment, says global economic concerns prompted the stocks and currency sell-offs.

Shim says because the domestic market is moving in line with the global market there is a limit to what the government can do in terms of policy or intervention. Stabilization of the Eurozone, he adds, must come first.

In Hong Kong, the Hang Seng index closed more than one-and-a-third percent lower.

There was no trading in Tokyo because of a Japanese national holiday. Big stock index losses were also seen in Taipei and Manila. Australian stocks closed off 1.50 percent.

But there was some investor relief later in the day when European markets opened higher.

Asia’s sell-off followed big stock losses Thursday in the United States and Europe. They were triggered by a Federal Reserve assessment that the U.S. economy faces significant risks due to slow growth, high unemployment and a depressed housing market.

Investors remained bearish (cautious) amid an influential European survey warning of recession and another report indicating a slowdown for the hot Chinese economy.

In Europe, there is also mounting speculation Greece will default on its debts while Italy’s sovereign rating has been downgraded. Additionally, the health of banks in France and other European countries are worrying investors.

The Euro rose about four-tenths of a percent against the yen, to 103 yen in early currency trading. The shared currency fell to as low as 102 yen Thursday, the weakest in more than 10 years. That was prompted by a pledge by the Group of 20 nations to make a “strong and coordinated” response to confront renewed challenges facing the global economy.

South Korea’s won saw its worst week in 16 months, falling as much as seven percent since Monday. But apparent central bank intervention helped the won record a one percent gain Friday.

There is additional concern in South Korea, where authorities on Friday raided seven savings banks deemed to have large debts and insufficient capital. They had been ordered to suspend operations a week ago.

Regulators allege the banks made illegal loans to some of their largest shareholders and used accounts under borrowed names for illegal operations.

As the raids were being conducted, police say the president of one of the financial institutions - the Jeil 2 Savings Bank - killed himself by jumping from the sixth floor of his Seoul headquarters. Witnesses say his body hit the pavement near a line of customers hoping to withdraw money from the shuttered bank.