Taipei - Taiwan's government and economists were in agreement Wednesday that the US financial chaos would negatively hit local financial institutions, stock and property markets but only in the short term.

The island's Central Bank decided to cut its bank reserve ratios starting Thursday to free up 200 billion Taiwan dollars (6.25 billion US dollars) in a bid to ease fund flows and boost the local markets.

The required ratio for check deposits, demand deposits and demand savings deposits are to be lowered by 1.25 per cent to 10.75 per cent, 9.775 per cent and 5.5 per cent, respectively, from the current 12, 11.025 and 6.75 per cent, it said in a statement Wednesday.

"The ratio reductions are adopted in light of an easing in domestic inflation, a slowdown in global economic development in recent months and current global financial market turmoil," the bank said.

Chen Miao, director of the economic forecast centre at the Taiwan Economic Research Institute, said the ratio cuts meant "the central bank has sensed the impact of the US financial woes to the local stock market, whose continued plunges would result in difficulty of local firms obtaining financing."

"The reduction would help bring down the cost of local banks and make funds available for the needy," Chen added.

Economist Liu Yi-ju said although local financial institutions would suffer because of the US financial storm, she did not think any of them would be forced to close.

Turmoil related to the plunging subprime US mortgage market has caused this week the bankruptcy of the US investment bank Lehman Brothers Holdings Inc, a US government bailout of the insurer American International Group Inc and the sale of another Wall Street titan, Merrill Lynch and Co. In addition, the US government seized control two weeks ago of mortgage giants Fannie Mae and Freddie Mac.

The Taiwan branch of Lehman Brothers was ordered by officials from the Taiwan Stock Exchange to stop all trading beginning Wednesday, two days after the Lehman Brothers declared bankruptcy.

The exchange added that the Taiwan branch had no apparent financial problems and could well resume trading after the US company's problems were resolved.

According to the Financial Supervisory Commission, Taiwan's total exposure to the Lehman Brothers group of companies is about 80 billion Taiwan dollars but financial institutions and private investors would not lose their entire holdings because the US company has more assets than debt while several of its subsidiaries are still operating normally. (dpa)