Asian Markets Drop after Wall Street Reacts to President Obama's Bank Limits

Asian stock prices have dropped in line with markets in the United States after President Obama announced plans for new limits on how banks invest.

Benchmark indexes in Australia, Hong Kong, Japan, and Seoul fell up to two and a half percent Friday. Some markets sank nearly three percent in early trading, but the losses eased in the afternoon.

President Obama said Thursday he wants to restrict banks ability to make excessively risky investments to avoid another financial crisis.

U.S. markets drooped on the news, leading Asian stocks to follow suit.

David Cohen, director of Asian forecasting at Action Economics in Singapore, says the sell-off is just a reflex and Mr. Obama's limits on banks are not likely to have significant effects on world markets.

"A lot of it is political in the United States, revolving around the populist anger at Wall Street," he said. "And, the fact that Obama waited this long to introduce the measure I think says something to that. It's more … as much a political response to some of the problems that the Democrats have been feeling lately."

The drop on Wall Street was the second day that stocks took a tumble. Markets slumped Wednesday after China said it would reduce bank lending to slow its economy.

Chinese officials said Thursday their economy is back into double-digit growth and has recovered from the global financial crisis.

Cohen says curbs on bank lending are a logical step in view of China's rapid growth.

"The reason the policy makers in Beijing are looking to tighten policy a little bit is simply because their economy has been showing strong momentum as it entered 2010 and it just might be appropriate to withdraw some of the aggressive stimulus that they added about a year ago in a successful effort to counter the drag from the global downturn," he said.

Some economists have said China's economy was an important factor in the world avoiding a more serious economic problem.

Cohen agrees. He says the global economy is now on track to recover with Asian economies, and in particular China. in the lead.

But, he says although there is a lower chance of another financial crisis there are still risks that could shake up markets.

Cohen says there are no doubt more problems hidden in some banks and that governments still have to deal with the massive debts racked up from spending to stimulate their economies.

In the Asian markets, Australia's All Ordinaries index fell 1.6 percent, Japan's Nikkei closed down almost 2.6 percent and Seoul's Kospi lost 2.2 percent. Hong Kong's Hang Seng closed six tenths of a percent lower, but had been down nearly three percent in the morning.