AIG credit cut sends European, Asian markets lower

European equities markets were mostly lower Tuesday on continuing fallout from the Lehman Brothers (NYSE: LEH) bankruptcy and after Standard & Poor’s and Moody’s Investors Service both cut their credit ratings on US insurer American International Group (NYSE: AIG).

This downgrade will likely make it more difficult for AIG to raise the money it needs to remain in business.

In London, the FTSE 100 was down 3.43 percent to 5,025.6 while the FTSE 250 dropped 3.44 percent to 8,409.1.

On the 250, investment company Mecom Group (LSE: MEC) dropped 55.32 percent, while the biggest loser on the 100 was HBOS (LSE: HBOS) which was down 21.72 percent.

Among other banks, Royal Bank of Scotland (LSE: RBS; NYSE: RBS PRM) dropped 10.17 percent, but Lloyds TSB (LSE: LLOY) added 2.19 percent.

Miners were down significantly, with many down in the 6 percent to 9 percent range, while iron producers fell the most with International Ferro (LSE: IFL) down 14 percent and Aricom (LSE: ORE) falling 17.32 percent.

The FTSE Eurofirst 300 was down 2.55 percent to 1,091.38 while the Dax fell 1.63 percent to 5,965.17 and the CAC-40 dropped 1.96 percent to 4,087.4 but the IBEX bucked the losing trend and added 0.11 percent to 10,911.5.

Banks were lower all over Europe, while the semiconductors sector also declined but airlines, software groups and some carmakers saw gains.

Equities markets in the Asia-Pacific region were also down again.

Program trading was halted for a short time in South Korea after index futures fell sharply, while China cut interest rates for the first time in six years and the Bank of Japan injected ¥2.5 trillion ($24 billion) into its financial system, all in an effort to control damage from recent bad news.

In Taiwan, meanwhile, the government ordered four major funds and state-owned banks to buy shares in order to help support markets.

The biggest declines in the region came in South Korea, where the Kospi index dropped 6.1 percent to 1,387.75, while the Hang Seng wasn’t far behind with a decline of 5.44 percent to 18,300.61, a decline of over 1,000 points, in Hong Kong.

In Tokyo, the Nikkei 225 was down 4.95 percent to 11,609.72 while the Topix index fell 5.07 percent to 1,117.57 and the Mothers market of small and mid-caps dropped 0.71 percnet to 434.07.

Elsewhere in the region, Taiwan’s Taiex was down 4.89 percent to 5,756.59 while the Shanghai Composite fell 4.47 percent to 1,986.64, Australia’s Sydney Ordinaries dropped 1.54 percent to 4,799.8 and the S&P/ASX200 was 1.39 percent lower to 4,750.8, the Straits Times Index fell 1.01 percent to 2,461.43, and India’s Sensex dropped just 0.09 percent to 13,518.8.

Banks and other financial services groups saw significant declines, while miners in the region fell as metals prices dropped.

At just after 1:30 p.m. in New York, the Dow Jones Industrial Average had added 0.52 percent while the Nasdaq Composite was barely in to gains with a jump of 0.01 percent to 2,180.07 and the S&P 500 was up 0.38 percent to 1,197.23.

The gains came on declines in oil prices and on the possibility that the Federal Reserve will cut interest rates in a decision due later in the session.

Also helping was new data from the Labor Department that showed consumer prices down 0.1 percent in August, the first decline in the cost of living in nearly two years.

The Nasdaq was hurt by computer maker Dell (NAS: DELL), which was down 10.34 percent., while AIG dropped 32.35 percent on the downgrade to its credit rating.

Some banks saw gains as Bank of America (NYSE: BAC) added 4.82 percent and Wells Fargo (NYSE: WFT) was up 10.81 percent.

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