Taiwan stocks feel growth slump

Taiwan's tech-driven economy saw its worst drop in 26 years, driving down stocks in Taipei

By staff and wire reports

TAIPEI, Taiwan -- Taiwan's markets turned down on Monday morning, as investors reacted to shockingly bad growth figures.

Data released Friday showed Taiwan's economy hitting the skids in the second quarter, with gross domestic product shrinking 2.35 percent from the same time last year.

That was the worst fall in 26 years.

Taiwan's central bank immediately cut interest rates, moving the discount rate to 3.25 percent. But that had little effect on trade Monday, with the benchmark Taiex opening sharply lower in morning trade.

The index was leading losses on a down day for Asian stocks. The Taiex opened off and was down 1.3 percent shortly before 1100 local time on Monday.

CNN.com Asia More news from our Asia edition

But it rallied back from a more-than 2 percent slump right after the opening bell.

The market's largest company, Taiwan Semiconductor Manufacturing, was down 2.2 percent at T$66.00. The world's largest contract chip maker is feeling the crunch of the slowdown in tech spending.

Rival United Microelectronics was down 1.3 percent at T$38.40.

Recession fears

Taiwan's export slump led to much of the drop in GDP. Officials said they expect an even larger drop in the third quarter, which would put Taiwan in recession.

The island's chip-driven economy has been hit hard by the slowdown in electronics spending worldwide.

Electronics stocks were leading the losses, with the index down more than 2 percent in morning trade.

The biggest computer maker in Taiwan, Acer, saw its stock fall 3.3 percent to $17.70 in morning trade.

Investors said state-backed buying was propping up the market.

On the currency market the Taiwan dollar slumped to a low of T$34.64 against the U.S. dollar before recovering slightly.

Taiwan's poor economic prospects have encouraged politicians to consider closer ties with mainland China, which regards Taiwan as a renegade province.

Taiwan's government said last week it would ease some trade restrictions with the mainland -- an announcement with temporarily boosted stocks.

Reuters contributed to this report.