Tags: World | Markets

G-7 Leaders Plan Urgent Talks as Mideast Markets Tumble

Sunday, 07 Aug 2011 06:28 AM

TOKYO — Financial ministers from the Group of Seven economies plan urgent talks on world market stability as Middle Eastern markets tumbled Sunday in the first sign of investor fallout from a historic U.S. credit downgrade.

Deputy finance ministers agreed Sunday on a conference call among the higher-level ministers likely to be held before Asian markets open Monday morning, Kyodo News agency reported.

The countries are concerned Standard & Poor's downgrade of the U.S. credit rating late Friday would significantly rattle consumer and business confidence and financial markets.

The leaders from Britain, Canada, France, Germany, Italy, the U.S. and Japan are also expected to discuss the eurozone sovereign debt concerns.

Japan's Senior Vice Finance Minister Fumihiko Igarashi hinted Sunday that Tokyo would intervene in the currency market if excessive fluctuations continue.

It already intervened Thursday to weaken the yen, which Finance Minister Yoshihiko Noda said was to protect the country's economic recovery from an earthquake and tsunami in March.

"It's not over yet. We will act again i we see speculative moves," Igarashi said on a talk show Sunday on public broadcaster NHK, referring to a possibility for more rounds of yen-selling intervention.

Many economists see the world's big central banks as the last line of defense at this moment in the crisis, after policymakers in Europe and the U.S. have failed to agree on the kind of shock-and-awe moves that many investors demand.

In the eurozone, the summer recess of national parliaments is delaying the implementation of crucial changes to the currency union's bailout fund that could help save Italy and Spain from expensive bailouts.

Many investors have also been calling on the U.S. Federal Reserve to start pumping money into the American economy again to help underpin the slowing economic recovery.

Both Italian Premier Silvio Berlusconi and EU Monetary Affairs Commissioner Olli Rehn on Friday called for coordination between G-7 countries, saying the crisis has to be tackled on a global level.

In the United States, credit rating agency S&P said it would strip the U.S. of its sterling AAA credit rating for the first time and move it down one notch, to AA+.

"Our initial sense is that the S&P decision will do nothing to calm jangled nerves at the beginning of the week," Russell Jones, of Australia's Westpac Institutional Bank, wrote in a report Sunday. "Treasury yields are initially likely to move higher, perhaps sharply so, and risk assets will also suffer further losses."

Still, he added that Treasury weakness was unlikely to last long for various factors, including that the U.S. still retains its top credit rating with Moody's Investors Service and Fitch Ratings.

Some economists say the real danger won't be higher interest rates but that the downgrade will reinforce doubts in the American economy and its leaders.

Middle East markets, open Sunday through Thursday, were the first to react to the downgrade. Dubai's main market index was down more than 4 percent at midday, and other Gulf markets also opened sharply lower.

China, the largest foreign holder of U.S. debt, on Saturday demanded that the United States tighten its belt and overcome its "addiction to debt."

Japan's Nikkei index lost ground in the past week due to debt crisis developments.

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