Trouble started early on Wall Street when traders grew worried about a 6 percent decline in Hong Kong's Hang Seng index Monday. The Asian economic crisis, which started the Hong Kong avalanche, spread to Latin America and continued to put severe pressure on European and American markets.
Fears that currency speculators would continue attacking the Hong Kong dollar, forcing the government to keep interest rates high to defend the currency, spurred investors to flee Hong Kong. Higher interest rates spell trouble for stock markets, because they slow down corporate growth.
Hong Kong leader Tung Chee-hwa, meanwhile, drew a line in the sand for speculators, vowing the Hong Kong dollar's 14-year peg to the U.S. dollar is rock solid. He noted that the territory has US$88 billion in foreign reserves to defend its currency.
In addition to Asian currency woes, U.S. investors will have some important economic indicators to keep an eye on this week. Chief among them is Tuesday's key third-quarter employment cost index.
The ECI, seen as a barometer of labor costs and a key gauge of potential wage inflation, is expected to be reported at 0.9 percent, according to a Reuters poll of economists.
Also worth watching, Federal Reserve Chairman Alan Greenspan's update on the economy this Wednesday. More than once in the past year, comments from Greenspan have provoked market downturns. The Fed Chairman has the power to raise interest rates, which would pressure equities downward. But many analysts say Asia's woes make it less likely the Fed will try to push through a rate hike.