By Rafael Nam
HONG KONG, Feb 6 (Reuters) - Asian stocks headed for their
biggest fall in two weeks on Wednesday after much weaker than
expected service sector data in the United states and Europe
fueled fears of recession, sending investors fleeing to safer
bonds.
Tokyo's benchmark Nikkei index <> and Singapore
<.FTSTI> fell by around 4 percent by midday, while Hong Kong's
blue-chip index <> tumbled more than 5 percent in a
half-day session ahead of the Lunar New Year holidays, which
begin on Thursday across parts of Asia.
The MSCI's measure of Asian stocks excluding Japan
<.MIAPJ0000PUS> dropped 2.7 percent, on its way towards its
biggest decline since losing 6.3 percent on Jan. 22, a day when
investors had feared a protracted bear market was at hand.
Markets worldwide have buckled this year amid concerns that
the sharply slowing U.S. economy will drag on global growth and
on signs of more subprime-mortgage related problems in the
financial sector. The MSCI ex-Japan index suffered its worst
month in January since September 2001.
"It cannot be helped. The market is being hit by U.S.
recession fears," said Yoshihiro Ito at Okasan Capital
Management in Tokyo.
"The impact of subprime (mortgage) problems is spreading
into the broader U.S. economy," Ito added
The vast U.S. services sector unexpectedly retrenched to
recessionary levels in January, data on Tuesday showed, while
euro zone services growth slowed to a near-halt, casting doubts
about the outlook for Asian exports. []
Worries about the fate of U.S. bond insurers also
contributed to the sell-offs seen in the region, despite talk
of various rescue plans, after Standard & Poor's on Tuesday
warned the ratings of U.S. banks could be at risk.
[]
Exporters such as Canon Inc <7751.T> slumped, as did
regional financial firms such as Australia's Allco Finance
<AFG.AX> and Japan's Mitsubishi UFJ Financial Group <8306.T>.
Australian stocks <> also fell, hurt by a 7 percent
decline in BHP Billiton <BHP.AX> after the world's biggest
miner launched a hostile $147.4 billion bid for Rio Tinto
<RIO.AX>. [].
China's state-owned aluminium giant Chinalco and its
partner Alcoa Inc <AA.N>, which last week surprised markets by
taking a 9 percent stake in Rio, said they were analysing BHP's
bid but that there would be no quick reaction. []
Still, concerns about a pricey counterbid sent shares in
Chinalco's listed subsidiary Aluminum Corp of China Ltd
<2600.HK> down 9.7 percent.
But trading in Asia was thinner than usual, with markets in
South Korea, Taiwan, and China already closed for the rest of
the week in what is turning out to be a less than festive start
to the Lunar New Year.
FLEEING FOR SAFETY
Expectations that the European Central Bank will cut
interest rates later this year kept the euro <EUR=> steady
against the dollar, but the Japanese yen <JPY=> rose as the
global stock slide sparked unwinding of risky carry trades.
Carry trades involve investors borrowing low-yielding
currencies such as the yen to fund purchases of riskier assets
which offer the potential of higher yields, such as stocks or
commodities.
Bonds in the region were well bid as investors sought to
avoid the slump in equity markets. Japanese government bond
futures jumped by more than half a point in early trade, while
Australian bonds extended a recent rally.
March 10-year Japanese government bond futures surged as
much as 0.82 point and ended the morning session up 0.77 at
137.97.
But a further decline in the U.S. dollar could do more harm
than good for the credit ratings of foreign governments, as it
would hurt trade competitiveness and increase inflation among
other factors, Moody's Investor Service said on Tuesday.
Oil prices extended their decline to just above $88 a
barrel as the weak U.S. economic data reinforced fears that the
world's largest economy is on the brink of a recession.
U.S. light crude <CLc1> fell 28 cents to $88.12 a barrel,
adding to previous session's 1.8 percent drop.
Gold bounced back after falling a day earlier to its lowest
level in almost two weeks, with spot prices <XAU=> last quoted
at $889.75/890.75 an ounce. Platinum <XPT=> rose to
$1,777/1,782 in Asian trade.
