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Our Bureau

Mumbai, Sept. 17 Convulsions on Wall Street eased a bit on Wednesday, feeding on the announcement by US Federal Reserve of a bail-out of the embattled American International Group (AIG) that may help the US insurer from capsizing the Lehman way.

While US investors initially reacted positively to the announcements, US stocks slid on Wednesday as a spike in inter-bank lending rates added to fears of credit constraints in the global financial system. Additionally, investors were worried the AIG rescue wouldn’t be enough to stem the turmoil that has rocked markets. Concerns over who might be the next in the financial sector to come under strain, sent the S&P financial index down 3.4 per cent.

European stocks had only a short-lived rally and Asian markets reacted with mixed sentiments. The benchmark Sensex shed over 250 points, as investors were more focussed on domestic developments.

Apparently, Indian investors were more concerned about the US’ decision to blacklist imports of some 30 drugs of Ranbaxy and ICICI’s exposure in senior bonds of Lehman Brothers, analysts said. In addition FIIs sold, either to move their funds overseas or to invest in debt.

Asian investors remained wary of the Federal Reserve’s rescue bid - while Nikkei was up by 1.21 per cent, Hang Seng was down by 3.63 per cent. After opening sharply higher in the wake of the Federal Reserve’s announcement, European markets began to dip as stocks came under pressure. FTSE 100 ended the day with a fall of 0.96 per cent.

The Sensex, on the other hand, was down by 1.89 per cent, mostly driven by domestic concerns. FIIs were the net sellers for Rs 1064.17 crore.The top losers were Sterlite Industries (8.04 per cent), Ranbaxy (6.60), ICICI (5.25) and ITC (5.07).

The Federal Reserve Board announced that the Federal Reserve Bank of New York is providing a two year $ 85 billion secured revolving credit facility to AIG, which was on the brink of a collapse.

Meanwhile, the domestic currency appreciated by 55 paise against the greenback on Wednesday, (breaking the week long depreciating trend when it weakened by more than Rs 2 against the dollar), after the RBI intervened to check its fall. Widening arbitrage in the unofficial non deliverable forwards market and FII selling had hammered the rupee.

The US dollar and yen fell while commodities rebounded in early dealings, with most markets firmer, led by strength in gold and crude oil. Grain and softs markets, such as coffee, sugar and cotton, were also in the black after two days of sharp losses related to financial market turmoil.

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