Page last updated at 12:38 GMT, Wednesday, 8 October 2008 13:38 UK

India leads S Asia market falls

A stock broker in India near his market monitor
International financial turbulence is buffeting India

Indian stocks fell to a two-year low on Wednesday amid fears the credit crunch could lead to global recession.

The benchmark Sensex dropped below 11,000 in early trade before recovering to end just over 3% down on the day.

The falling stocks also affected the Indian rupee, which sank to 47.9 against the US dollar.

Meanwhile, Pakistan's currency has slumped to a record low against the dollar because security and economic problems have scared off investors.

The stock markets of Colombo and Dhaka have also dropped in recent days.

Experts say that the Sri Lanka All Share Index fell by 3% - partly a reflection of international turmoil in the markets and partly because of internal problems including high inflation and interest rates.

The falls in Bangladesh have been mostly attributed to internal factors.

Brokers say that the relatively small stock market in Nepal - which recently elected a Maoist government - has not been affected by the crisis.

'Panic mode'

But correspondents say that the global slowdown and the weaknesses of the US economy have directly affected India, where investors are in "panic mode".

A newspaper headline on rising stock market in Mumbai
India's stock markets are no longer bullish

Trading on the Sensitive Index, or Sensex, of the Bombay Stock Exchange was down 7% in the opening session but recovered to close at 11,328, the BBC's Prachi Pinglay in Mumbai (Bombay) says.

Deepak Mohoni, a market strategist, said: "What we have seen is quite unique as share prices of not just equity but commodities as well fell."

He said that the markets were taking their cue from global developments and the Indian government could not have done much.

Ambarish Baliga, from a Mumbai (Bombay) stock broking agency, said that recent falls are due to a lack of fresh investment and a scramble by existing investors to get out.

"At the moment no one is looking at share prices," he said.

"They just want to sell whatever they can and get out of the market. However, there is some genuine buying as well. When the selling stops, there will be a decent bounce back.

"But it will be a long while before we get to the strong boom which the Indian markets enjoyed a few months back."

On Monday, the Reserve Bank of India cut the cash reserve ratio for banks from 9% to 8.5%. The move was done to generate more cash in the banking system to reduce the impact of the global crisis.

Rupee 'weakening'

Experts say that the fall in the value of the Pakistani rupee is because of unrelenting pressure from import payments and an erosion of confidence in an economy facing many problems.

The currency has lost 23.3% of its value so far this year.

"Unless you see any inflows, you can't stop the rupee from weakening," a currency dealer told the Reuters news agency.

Correspondents say that the central bank has tried to stamp out speculation against the currency in the past few months, but had been unable to stop the steady erosion of its value.

The central bank, with less than $5bn, has just enough foreign currency to cover two months of imports.

In an attempt to lift confidence, State Bank of Pakistan Governor Shamshad Akhtar said on Tuesday that the country's banking system was "resilient enough to withstand market shocks and the adverse macroeconomic situation".

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