Rating cut for American International Group hurts equities markets

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.

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.

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

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 percent 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.

Wall Street had a volatile day.

Markets were higher in early afternoon trade following early declines, but right after the Federal Reserve decided to hold interest rates steady at 2 percent the Dow Jones Industrial Average and the S&P 500 dropped more than 1 percent each and the Nasdaq Composite was almost 1 percent lower.

It didn’t take too long, however, for the indices to recover most of those declines and at just before 3 p.m. in New York the Dow was 0.86 percent higher to 11,011.14 while the Nasdaq had added 0.46 percent to 2,189.94 and the S&P 500 had gained 0.92 percent to 1,203.66

Crude oil prices were down sharply for a second day in a row, while metals and grains prices also declined.

The pound weakened versus the euro and the US dollar while the South African rand and the Australia and New Zealand dollars declined as investors lost interest in buying higher-yield currencies.

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