Philippine stocks plummeted 12.27 percent Monday, the biggest single-day drop in 18 years, as investors continued to dump emerging-market equities because of worries on a sharp global economic downturn.

The fears of a global recession also dragged the peso down to a two-year low of 49.399 to the dollar. The peso?s fall was tempered by the central bank?s heavy selling of dollars.

The peso has fallen by 16.4 percent since the start of the year, making it among the worst-performing currencies in Asia after the South Korean won (down 35 percent) and Indian rupee (down 21 percent).

Alejandro Yu, president of RS Lim and Co., described the massive sell-off across the board as ?a bloodbath.?

Shares of Banco de Oro Unibank dived 24 percent after the country?s second-largest bank by assets reported a third-quarter net loss of P1.3 billion primarily due to provisions for its exposure to bankrupt US investment bank Lehman Brothers.

The Philippine Stock Exchange (PSE) blue-chip index crashed 239.66 points to 1,713.83, its lowest level since it settled at 1,702.21 on Sept. 20, 2004.

Trading on the PSE was suspended at 11:23 a.m. after the PSE index slumped 10.03 percent, automatically triggering the bourse?s ?circuit breaker rule.?

The PSE had approved on Sept. 30 the imposition of an automatic 15-minute halt to trading if the PSE index fell 10 percent. The rule, which is practiced by stock exchanges in other countries, is designed to calm down emotional selling.

?This is the first time in history something like this happened. It?s really because of what happened to global markets last Friday. It?s not surprising,? PSE president Francis Lim said.

As much as P252.56 billion in stock market value was eroded by the heavy selling on Monday.

As a result, market capitalization?the value of stocks as measured in terms of prices multiplied by the number of issued shares?dropped to P4.752 trillion from P5.005 trillion on Friday.

It was also the market?s single biggest percentage loss since Feb. 28, 1990, when the PSE adopted a new method for computing the index, using the stock price of listed firms multiplied by the number of issued shares. The old method used only stock prices.

The loss was the biggest one-day point decline since Feb. 28, 2007, when the market plunged 263.84 points.

The broader all-shares market also slipped 9.74 percent or 122 points to 1,138.07. Value of trades was thin at P1.6 billion with 1.1 billion shares changing hands.

Pressure on peso

On the currency market, traders said the peso was also under pressure from banks scrambling for dollars to cover mark-to-market losses from their foreign currency deposit unit (FCDU) assets.

An FCDU is a unit of a local bank or of a local branch of a foreign bank authorized by the central bank to engage in foreign exchange denominated transactions, such as accepting foreign currency deposits and granting of foreign currency loans.

Banks are required to put up a 100-percent cover for their FCDU assets.

But once banks start reclassifying their investments in bonds and equities as recently allowed by the central bank, additional liquidity will be released into the system, a currency dealer said.

?So, there might be no more need to change the overbought limits,? the dealer said.

The new measure falls short of suspending the marking-to-market?or the accounting method of booking gains or losses based on current market prices, which had been partially blamed for massive bank failures in other markets.

Paul Joseph Garcia, chief investment officer at ING Philippines, noted that the season of strong inflows of foreign exchange remitted by overseas Filipinos had begun and should provide support to the local currency.

?But investors are taking stock of other risk factors,? he said. ?The US dollar is now considered a safe-haven currency.?

The central bank was said to have unloaded dollars when the peso hit lows during the day?s trading to temper the peso?s slide.

The peso opened trading at 48.995 to the dollar, near its intraday high of 48.99, before closing at the day?s low of 49.399?its weakest level since touching 45.54 during trading on Dec. 21, 2006.

The volume of trading on the currency spot market surged to $1 billion from Friday?s $758 million.

PLDT leads drop

On the stock exchange, Philippine Long Distance Telephone Co. (PLDT) led the decline. Its share prices dropped P305 or 14.1 percent to P1,850. It accounted for 22.9 percent of total market value.

PLDT American Depositary Receipts are traded on the US market. The PLDT share price drop ?is understandable, considering Wall Street?s fall, but what?s surprising is everything followed,? Campos Lanuza & Co. said in a research note. ?It looks like foreigners are liquidating their positions to shore up funds in the US.?

The research note said access to credit markets was becoming a problem because of a rise in international interest rates based on the London interbank offered rate.

The Ayala group?s listed units also drove the market downward, with Ayala Land Inc., Ayala Corp., Bank of the Philippine Islands (BPI) and Globe Telecom Inc. accounting for a total of 37 percent of total trades.

Ayala Land fell 8.6 percent to P5.30, Ayala Corp. 11.8 percent to P200, and BPI 10 percent to P36.

Campos Lanuza & Co. said, ?At the end of the day, this [market?s volatility] is not representative of the underlying value of stocks. There are a lot of undervalued stocks. But don?t catch a falling knife. Don?t find the bottom at this point. Let the urge to sell run its course before you start picking up.?

Joseph Roxas, president of Eagle Equities Inc., said the mood on the trading floor was depressing.

However, on the PSE trading floor in the Ortigas business district, traders displayed mirth just before trading was suspended for 15 minutes?clapping their hands, hooting and blowing party horns when the index started sliding by as much as 9.5 percent.

?People were just counting down before the circuit breaker was triggered. It?s because it?s the first time in history something like this happened,? said Joel de la Peña, director and trader at HE Bennett Securities Inc. With a report from Reuters; with editing by INQUIRER.net