The crisis in the Hong Kong financial markets has knocked billions of pounds off the value of share prices around the world, and there are fears that continuing turmoil in Hong Kong today will lead to further losses on stock markets. But while financial analysts are deeply concerned about the prospects for the Hong Kong market, they also drew some comfort from the late recovery in the New York market last night when the Dow Jones index regained over 40 points from its lowest point before closing down 2.3 per cent on the day.
A fall of this magnitude in New York is significant, but after the heavy falls in Europe earlier in the day, many analysts had feared a much more severe reaction from US investors.
The early fall on Wall Street and bigger falls on the major European stock markets followed the extraordinary collapse share prices in Hong Kong, where the market came under strong attack from speculators who are convinced the Hong Kong government will have to raise interest rates to protect its currency.
The 10 per cent fall in Hong Kong share prices on Wednesday, following a 6 per cent fall the previous day, sent tremors through stock markets around the world, especially those markets with companies exposed to Hong Kong and its continuing financial crisis.
The London stock market lost over £28 billion - 3 per cent of its value - while the losses were even more pronounced in Frankfurt where the local market suffered its biggest one-day fall this year, with prices down by nearly 5 per cent. The Dublin stock market managed to confine its losses to less than 1 per cent, but that resilience is unlikely to last if international markets continue to fall.
If major Japanese investors had moved to sell shares and put their money into more secure investments, there would have been a danger of more severe falls on European and North American markets.
After suffering its largest oneday stock market fall in history, analysts say the only action left to Hong Kong now is to raise interest rates further to defend the Hong Kong link to the US dollar.
This is regarded as crucial to its future as a safe haven for capital and investment in the south-east Asia region. If the link goes, they say, it will be a disaster, as a devalued Hong Kong dollar would bring about a flight of capital and the collapse of the capital, equity and property markets.
But Hong Kong is determined to safeguard the line with the dollar. Hong Kong's financial secretary, Mr Donald Tsang, said: "I believe very strongly in defending our dollars. Our dollars reflect the fundamentals of Hong Kong, and the fundamentals are exceedingly robust." He has vowed to use Hong Kong's enormous $88 billion reserves to defend the currency.
China, which took possession of Hong Kong less than four months ago, has not intervened despite the financial upheaval. Mr Tsang admitted that Chinese leaders are worried about recent developments in the market but have so far left the Hong Kong government to handle its own financial affairs.
Despite succumbing to Asia's financial crisis and suffering its largest one-day stock market fall in history, the outlook was not all grim. Economists generally agreed that Hong Kong had a good chance of toughing out the meltdown.
But there was little consolation for Hong Kong residents, who saw their savings disappear and are facing a painful readjustment.
The Sing Pao daily attributed the suicide of a 43-year-old British financial executive to the stock market turmoil.
The US Treasury and the US Federal Reserve said they were "carefully monitoring" the developments in Hong Kong and are in close contact with their counterparts in the region.