By Simon Rabinovitch
BEIJING (Reuters) - Corporate woes on Wednesday underscored the depth of damage from the gravest financial crisis in 80 years as policymakers vowed to pump more money into the veins of global markets to contain its fallout.
The Federal Reserve unveiled Washington's latest step to end the crisis, saying it could lend up to $540 billion to buy certificates of deposit and commercial paper from money market funds, which have struggled to cope with a wave of withdrawals by investors.
But poor earnings outweighed new cash pledges, pushing Wall Street and Asian stocks lower.
Governments around the world have now promised nearly $4 trillion to guarantee bank deposits and bank-to-bank lending, and in many cases have taken stakes in struggling banks, seeking to restore calm to markets after the most severe financial upheaval since the 1930s Great Depression.
The massive cash injections, bank bailouts and interest rate cuts appear to have gained traction after weeks of seemingly futile efforts to get money flowing again.
U.S. dollar short-term funding costs fell further in Asia, an important sign that banks are regaining trust in each other.
"We are starting to see bank yields come down, so to that extent the wild, exaggerated moves that we've seen in asset prices are probably coming to an end," said Sanjay Mathur, economist at the Royal Bank of Scotland in Singapore.
"Now we are going to have to deal with the problems of a business cycle downturn, which in all likelihood will be a fairly intense one," he said.
Asian stock markets, from Tokyo to Hong Kong, fell as poor corporate results underscored fears of a protracted global downturn, driving a key index of Asia-Pacific stocks outside Japan to a nearly four-year low.
ECONOMIC GLOOM
The gloom was captured in remarks by Gary Stern, a top Federal Reserve policy maker, who warned that U.S. growth could be restrained for as long as three years.
"Financial shocks are first and foremost in the financial sector. Whether they are associated with or lead to recessions is an open question," Stern, president of the Minneapolis Fed, said.
"If the government had not intervened, the consequences for the economy would have been very adverse," he said.
The list of companies in Asia reeling from the financial turmoil lengthened, with financial institutions, cement producers and software developers all caught in the fray.
Mitsubishi UFJ Financial Group's shares dropped 6.2 percent after the Nikkei business daily said Japan's top lender will sharply cut its net profit estimate for the half year ended September 30.
Cement maker Anhui Conch tumbled 6.5 percent after its third-quarter earnings came in well below market expectations, hit by weaker demand for building materials.
Wipro Ltd, India's third-biggest software services exporter, also disappointed analysts with its quarterly results and said the deteriorating economy made it cautious in the near term.
Delinquent loans on the books of smaller South Korean firms jumped in the third quarter, data from the country's financial regulator showed on Wednesday.
Expectations of sagging energy demand in major economies also knocked the price of oil, with crude futures dropping more than $2 a barrel to below $70.
MORE FROM GOVERNMENTS
Treasury Secretary Henry Paulson said on Tuesday that he was not opposed to a second fiscal stimulus program, fresh evidence that Washington may resort to another round of government spending and tax breaks to help the economy.
Japan and France earlier extended more help to banks and the IMF prepared to intervene in trouble spots such as Pakistan, Ukraine and Iceland, pushing emerging bond spreads to record levels in Asian trade on Wednesday.
In the latest sign how the credit crisis triggered by the collapse of the U.S. subprime market 15 months ago spread around the world, the government of Argentina said it was planning to take control of private pension funds.
Policy makers have tried to craft solutions on the fly, raising the risk of unwelcome side-effects.
Australia and New Zealand were forced to tweak their plans to guarantee bank deposits after media warned that the moves ha d caused financial dislocation by prompting a rush of money from
uncovered schemes into the back-stopped deposits.
Investors looked to an Asia-Europe Meeting opening on Friday for the next show of international unity in the face of the crisis. The 27 EU member states will meet with Japan, China and India and 13 other Asian countries.
(Reporting by Reuters bureaux worldwide; Editing by Tomasz Janowski)
