Asian shares fell after the US Federal Reserve hinted that it might raise interest rates as soon as 2015.
Hong Kong’s Hang Seng index officially hit “bear” territory, falling by 1% for a cumulative 20% decline since December 2, 2013.
The Nikkei fell 1.65% and the Shanghai Composite dropped 1% as well.
In her first meeting as Fed chair, Janet Yellen said the central bank would increase rates about six months after finishing its bond-buying program.
Most analysts expect that will occur towards the end of 2014.
The early rate rise indicator surprised many investors, who had expected rates to remain low for a longer period of time.
Asian shares fell after the US Federal Reserve hinted that it might raise interest rates as soon as 2015
That led to renewed fears that the end of easy money could negatively impact emerging economies that relied on foreign investors.
The falls in Asian markets followed a broad sell off in US markets.
The decline in the benchmark Nikkei comes despite Bank of Japan (BOJ) governor Haruhiko Kuroda’s comments on Wednesday that the country was on track to meet the bank’s 2% inflation target.
The BOJ has been engaged in a massive stimulation effort to combat deflation and encourage spending.
Japan recently reported its smallest trade gap in nine months, after January saw a record surge in imports ahead of the tax changes.
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Dow Jones and Standard & Poor’s 500 share indexes have set new all-time highs on Wall Street.
Now the stock markets are returning to levels not seen since before the global financial crisis.
Dow Jones and Standard & Poor’s 500 share indexes have set new all-time highs on Wall Street
Dow Jones rose 89 points, to close at 14,662, after an earlier intraday high of about 14,684.
S&P 500 closed at a record high of 1,570, suggesting investors are regaining confidence in the US economy.
Dow Jones has more than doubled in value since it plummeted to less than 6,550 points in the depth of the crisis in March 2009.
Tuesday’s rally came after a US Department of Commerce report showed new orders for manufactured goods rose 3% in February, topping predictions.
Also, carmakers General Motors, Ford and Chrysler reported strong US monthly sales performances.
General Motors said “a strengthening economy and new products” were factors behind the result.
European and US stock markets have fallen again after the head of Eurogroup suggested that the Cyprus model, which involves a tax on bank deposits, could form a template in any future bailout.
On Monday morning, hopes the deal would solve the crisis lifted shares.
By 15:30 GMT, all major European markets had fallen into negative territory, joined by US stocks.
Cyprus’ President Nicos Anastasiades, later addressed his country in a television broadcast.
The deal was “painful” but the best that could have been struck under the circumstances, he said.
Nicos Anastasiades said that controls limiting restricting the movement of capital would be temporary and he promised to protect the weak, saying that welfare payments would be met.
Earlier, markets in Europe and the US moved downwards when Jeroen Dijsselbloem, the Dutch Finance Minister who as head of the Eurogroup played a key role in the Cyprus negotiations, said the deal represented a new template for resolving future eurozone banking problems.
“If there is a risk in a bank our first question should be <<OK, what are you in the bank going to do about that?>>,” Jeroen Dijsselbloem told Reuters and the Financial Times.
Jeroen Dijsselbloem later added a clarification saying that Cyprus was “a specific case with exceptional challenges”.
The Cyprus deal puts the burden for dealing with problem banks on their shareholders and creditors – in this particular case, customers with large bank balances – rather than the government and taxpayers – and bondholders, who lend through financial markets.
European and US stock markets have fallen again after the head of Eurogroup suggested that the Cyprus model, which involves a tax on bank deposits, could form a template in any future bailout
Jeroen Dijsselbloem said the pattern for bank rescues should see shareholders take the first hit, then bond holders, who lend money through financial markets, and only then should depositors with large bank balances be tapped.
But his remarks raised fears that other European countries with struggling banks may face the same solution as Cyprus, which agreed to force those with cash on deposit above 100,000 euros, many of whom are Russian, to pay a substantial tax.
Cyprus will receive 10 billion euros ($13 billion) in bailout funds, but has agreed to a major restructuring of its banks.
Small savers will be protected but Cyprus’s second largest bank – Laiki Bank – will be wound up and split into “good” and “bad” banks, with its good assets eventually merged into the Bank of Cyprus, the country’s biggest bank.
The two banks will remain closed until Thursday, while all others will reopen on Tuesday after being closed for more than a week, Cyprus’s central bank says.
The Cypriot government suggested that account holders with deposits of more than 100,000 euros should expect to lose about 30% of their balances.
The UK’s FTSE 100 index ended the day down 0.2%, while Germany’s Dax gave up 0.5%, and France’s Cac lost 1.1%. In New York, the Dow Jones was 0.5% lower.
In Madrid, the market slipped 2.5% while the Milan index was down 2.27%.
The euro was also driven lower, falling to a six-week low against the pound. The euro was down 0.6% to 84.74 pence.
The new deal for Cyprus, unlike previous agreements, does not require the approval of the Cypriot parliament.
The uncertainty over the future of Cyprus in the eurozone was sparked a week ago when its parliament rejected an earlier bailout deal, which also included a controversial bank levy.
Despite the Cypriot economy’s relatively small size, many analysts had been concerned that the crisis would spread to the wider eurozone, had Cyprus been forced to give up the single currency.
There were fears that the country’s possible exit from the euro would trigger a loss of confidence across the single currency bloc, and prompt investors to withdraw from other troubled economies, such as Greece.
However, while Cyprus is now likely to remain in the eurozone, the country still faces significant obstacles as it attempts to recover from the crisis.
The EU-IMF deal involves a massive restructuring of the Cypriot banking system, as well as austerity measures and tax increases.
There has also been significant public anger in Cyprus at the intervention of European authorities, and the credibility of the Cypriot government has been questioned.
The Euro and stock markets have boosted in Asia after a deal to shore up Spain’s troubled banks eased concerns about a European currency break up.
In Asian trade, the euro rose 1% versus the US dollar and Japanese yen. Stock indexes in Japan and Hong Kong rose 2%.
On Saturday, eurozone ministers agreed to lend Spain up to 100 billion Euros ($125 billion) to help its banks.
Analysts said the deal would buy time for policymakers to solve other problems facing the 17-nation eurozone.
The biggest issue now looming on the horizon is the 17 June elections in Greece, and the worry that an anti-eurozone party may end up in a position of power.
“All eyes are still on Greece’s upcoming elections but investors’ worries over the eurozone have eased in the short term,” said Andy Du of Orient Futures Derivatives.
According to Stephen Davies of Javelin Wealth Management, the fact that the Spanish banking bailout was bigger than many people had expected pointed to a continuing “degree of strain within the European banking system”.
The Euro and stock markets have boosted in Asia after a deal to shore up Spain's troubled banks eased concerns about a European currency break up
“It reflects the fairly dire straits within which Europe continues to find itself,” he added.
Spain’s weakest banks were left with billions of Euros of bad loans following the collapse of a property boom and the recession that followed.
Currently Spain is in its second recession in three years and the economy is expected to shrink by 1.7% this year.
Its economic problems have become so acute, and its borrowing costs in the international markets so high, that there have been concerns that the government would not be able to service its debts.
At the same time, there were fears that some of its banks would not be able to find enough capital to continue to operate.
The exact amount of emergency funding that Spain will receive will be decided after two audits of its banks are completed within the next few days.
Spain’s loan was welcomed by the International Monetary Fund (IMF) as well as the US and Japan.
Spanish Prime Minister Mariano Rajoy hailed the decision as a victory for the single currency.
European Union economic affairs commissioner Olli Rehn said the deal was a clear signal to the markets that the euro area was ready to take decisive action to calm markets and contain contagion.
Spain is the eurozone’s fourth-biggest economy – twice the size combined of those of Greece, Ireland and Portugal, the countries bailed out so far.
However, tensions over the euro remain high with another election to be held in Greece next weekend.
If voters elect a government that refuses to abide by the terms of the country’s bailout deal, Athens faces a possible exit from the bloc.
Analysts said that in the days leading up to the election it was likely that a low-risk appetite from investors would return.
There are fears that a Greek exit could trigger a run on the banks, not only there but in other eurozone countries.
Greece has been in recession for five years, crippled by huge debts, high unemployment and labor unrest.