AIG rescued again

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New York: The US government rescued insurance giant AIG for the third time in five months, desperately seeking to save a world financial system so battered that Britain's HSBC hit shareholders with an $18 billion cash call.

More aid for AIG cheaper than collapse

The Dow Jones industrial average fell 4.2 per cent, closing below 7,000 points for the first time in nearly 12 years, after American International Group on Monday reported the biggest quarterly loss in US corporate history at $61.7 billion and Europe's biggest bank, HSBC, said it would shut most of its US consumer lending business.

The latest revision of the AIG bailout includes a $30 billion equity commitment from the US government that AIG can draw on as needed.

AIG wants more aid, sees $60 b loss

Investors feared the US government would have to stand by AIG no matter how much it bleeds because its collapse would ripple across borders. AIG guarantees about $300 billion of asset-backed securities and US and European banks are counter-parties on many of AIG's outstanding derivative contracts.

"When does this end? What are the sign posts that we're all going to be looking at to indicate to the government that this is working or that we are seeing a turnaround?" asked Paul Nolte, Director of investments at Hinsdale Associates, in Hinsdale Illinois.

The broader S&P 500 tumbled 4.7 per cent, dipping below 700 points for the first time since October 1996 and closing at 700.82. The MSCI world equity index fell 5 per cent to six-year lows.

Special: The Great Crash of 2008

US consumer spending rose 0.6 per cent in January, the largest increase since May, and US manufacturing shrank at a less severe pace in February. But the improvement was seen as a blip in a rapidly deteriorating economy.

US investors with any wealth remaining may find fewer tax havens in which to invest. A bill to be offered in the US Senate on Monday targets offshore tax havens in Switzerland, the Cayman Islands and other nations for shutdown.

Switzerland's justice minister and a top US Justice Department official met on Monday amid Washington's attempt to crack open the secrecy of major Swiss bank UBS.

Amid contraction, IMF lowers world growth outlook

Canada's economy shrank at an annualized rate of 3.4 per cent in the fourth quarter, slightly better than expected but still more than at any time since 1991.

Italy's economy contracted 1.0 per cent in 2008, the largest drop since 1975, raising the possibility of consecutive years of falling GDP for the first time wince World War Two.

The International Monetary Fund said it was likely to downgrade its global 2009 growth forecast into negative territory and France was poised to cut its economic forecasts, conceding that GDP was likely to fall 1.5 per cent this year rather than grow.

Investors saw the US dollar as a safe haven, bidding the greenback up to nearly three-year highs. European currencies plunged on news European Union leaders rejected a comprehensive bailout for Eastern European countries.

With Japan stuck in a deep recession, the yen inspired little confidence. Japanese government stimulus plans were seen as unlikely to prevent unemployment from rising to a post-war record.

HSBC taps shareholders

HSBC's cash call, at a 48 per cent discount to Friday's closing share price, was Britain's biggest rights issue, tapping shareholders for $18 billion to fix a balance sheet hurt by the global financial crisis.

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Annual profit fell by more than half as it absorbed the impact of soaring US bad debts. HSBC said it was shuttering most of its US consumer finance business as it closes out its $14.8 billion purchase of Household six years ago by writing off most of the value of the sub-prime business.

"With the benefit of hindsight, this is an acquisition we wish we had not undertaken," the HSBC Chairman, Stephen Green, said.

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