Malaysia shares to follow Wall St; rate cut eyed

KUALA LUMPUR, Jan 21 (Reuters) - Malaysian shares are set
for a soft start on Wednesday after Wall Street notched a
record drop overnight as the global banking crisis showed no
signs of easing. Local dealers said Malaysian banking shares were
increasingly getting pulled into the global selloff especially
as mounting expectations of a possible rate cut of 25 basis
points today by the central bank could hurt margins. "The rate cut will start the flow of negative news for
Malaysian banks, who are trying to sell off their debt as seen
with Public Bank and others who are raising capital," said a
trader with a local investment bank. "We expect the KL composite index to buckle under pressure
from banks, since that sector accounts for 22 percent." Malaysia's third-biggest lender Public Bank (PUBM.KL) said
on Tuesday it plans to sell at least 1 billion Malaysian
ringgit ($277.1 million) in debt this year. Top two lenders Maybank (MBBM.KL) and CIMB (BUCM.KL) are
also currently raising funds to boost capital amid the rapidly
spreading economic downturn. "The activities of these banks suggest that Malaysia could
be heading for a technical recession in the first quarter of
this year," said another dealer. "Some analysts are talking about a more aggressive interest
rate cut of about 50 basis points, so we are not that insulated
from the rest of the world." The Dow Jones industrial average .DJI dropped 332.13
points, or 4.01 percent, to 7,949.09. The Standard & Poor's 500
Index .SPX slid 44.90 points, or 5.28 percent, to 805.22. The decline for the Dow marked the largest point and
percentage drop for the index since Dec. 1, 2008, and the first
time the Dow has been below 8,000 since Nov. 20, 2008. Malaysia's benchmark stock index .KLSE closed down 1.11
percent at 880.37 points. Traders pegged Wednesday's resistance
level at 800 points.