By Tom Miles
HONG KONG, March 3 (Reuters) - The dollar fell to a record
low against a basket of currencies on Monday, dragging Asian
stock markets down and compounding worries about a likely U.S.
recession and more write-downs in the global financial sector.
A sliding dollar boosted safe-haven bonds and sent gold to
a record high in Asia.
The dollar fell as low as 73.551 <.DXY> against a basket of
six major currencies, taking it to the lowest since the index
was started in 1973. It ploughed below 103 yen <JPY=> as a
sell-off in Wall Street last Friday spurred an unwinding of
carry trades.
The falling currency sent spot gold <XAU=> to a record high
of $980.75 an ounce but hurt share prices, with Japan's Nikkei
average stock price index <> down 4 percent by 0147 GMT.
Exporters such as Honda Motor Co <7267.T> and Sony Corp
<6758.T> were both trampled down more than 4 percent in the
rush to get out of the stock market.
Asian stocks outside Japan, gauged by MSCI's index
<.MIAPJ0000PUS>, were down 2 percent, with the main Sydney
<> and Seoul <> indices both off about 3 percent.
"This is typical when you get into an early bear market,
there are no real positives out there," said David Spry,
research manager at F.W. Holst in Australia.
"There are a lot of pressures, but the real issue is around
earnings, and profit expectations have been lowered. On top of
that you have (rising) interest rates, the U.S. is going to get
worse before it gets better, and credit markets are very
tight."
Global investors have been glued to their screens for
months for any sign that the U.S. economic malaise could spread
around the world, with a falling dollar undermining Asia's
exports and pushing prices for dollar-denominated commodities
ever higher.
DIRE DOLLAR
Last week's testimony by U.S. Federal Reserve Chairman Ben
Bernanke, in which he warned some small U.S. banks could fail
and signalled more rate cuts might be needed, re-ignited the
fears of recession that made January such a bloodbath for
equity markets.
The latest round of weak U.S. economic data added to those
fears on Friday, while a record loss at insurer American
International Group Inc <AIG.N> underscored worries about more
write-downs in the financial sector.
The major indexes fell more than 2 percent and ended the
month in the red for the fourth month in a row. It marks the
longest string of monthly losses for the Dow <> and S&P 500
<.SPX> since 2002.
Bernanke is due to speak again on Tuesday and analysts
assume he will reiterate his willingness to cut rates even in
the face of rising inflation.
The Reserve Bank of Australia is expected to lift rates to
7.25 percent from the current 11-year high of 7 percent, while
the European Central Bank, the Bank of England, the Bank of
Japan and the Reserve Bank of New Zealand are expected to hold
steady.
But analysts were wary that ECB President Jean-Claude
Trichet would soften his tone.
"The risk is that Trichet gives a nod to the deepening
credit crunch and the recent signs of softness in the euro
area," said Robert Rennie, chief currency strategist at
Westpac. "If so, that could hurt the euro.
"On the other hand, the flow of U.S. data this week is
likely to be dire, keeping the pressure on the Fed and the
dollar," he added.
With stocks seeing red, investors looked for reliable
returns elsewhere, driving up prices for fixed-income
government bonds.
The scramble for sovereign debt pushed the yield on
two-year U.S. Treasury notes <US2YT=RR> down to 1.588 percent,
the lowest since early 2004.
Japanese government bond futures also jumped to a fresh
one-month high, with March 10-year futures <2JGBv1> at 138.74.
(Editing by Jacqueline Wong)
