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By Tom Miles
HONG KONG, March 3 (Reuters) - The dollar slid to a 3-year
low against the yen on Monday, and Asian stocks fell, with
Tokyo's Nikkei shedding 4 percent, burdened by growing fears
about a U.S. recession and more writedowns in the financial
sector.
The dollar fell as low as 73.531 <.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 Wall Street's sell-off
on Friday prompted an unwinding of the carry trade, where
investors borrow currencies with a low yield -- like the
Japanese yen -- to buy high interest rate currencies.
As investors grew even more risk averse, they sought safety
in government bonds and gold, which hit another record high of
$980.75 an ounce in Asian trade.
"Gold has more room to rise considering that its pace of
rise has been slower relative to other commodities. Gold should
reach $1,000 very soon," said Tatsuo Kageyama, an analyst at
Kanetsu Asset Management in Tokyo.
Shares in Asia slid across the board, tracking U.S.
indexes, which have fallen four months in a row, the longest
string of monthly losses for the Dow <> and S&P 500 <.SPX>
since 2002.
Japan's Nikkei average stock price index <> was down 4
percent by 0300 GMT.
"With a huge drop in U.S. stocks and the sharply firmer
yen, the fall can't be helped. Domestic trading factors can no
longer calm the market," said Yutaka Miura, deputy manager of
the equity information department at Shinko Securities.
"Depending on the outcome of economic indicators from now
on, we may have to brace ourselves for the possibility of the
Nikkei breaking below the recent low hit in January."
Asian stocks outside Japan, gauged by MSCI's index
<.MIAPJ0000PUS>, were down 2.8 percent, with the main Sydney
<>, Hong Kong <> and Seoul <> indices all off
about 3 percent.
TREASURED
With stocks seeing red, investors scrambled to buy
sovereign debt, squeezing the yield on two-year U.S. Treasury
notes <US2YT=RR> down to 1.58 percent, the lowest since early
2004. But the appetite for Japanese government bonds (JGBs) was
kept in check as dealers awaited an auction of 10-year JGBs on
Tuesday.
"Price movements in JGBs are relatively stable compared
with those stocks and U.S. Treasuries because the 10-year bond
auction is just ahead," said Makoto Yamashita, chief JGB
strategist at Lehman Brothers.
March 10-year futures <2JGBv1> were up 0.21 point at
138.68, after reaching as high as 138.74, their highest since
January 23.
Crude oil prices <CLc1> hovered just below an all-time high
of $103.05, supported by the decline in the U.S. dollar and
expectations oil cartel OPEC would leave its output unchanged.
BERNANKE SNEEZES
Global investors have been glued to their screens for
months for any sign that the U.S. economic malaise is spreading
around the world, with a falling dollar undermining Asia's
exports and pushing prices for dollar-denominated commodities
ever higher.
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, cemented the view
the world's top economy is heading for a recession.
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> fuelled worries that there are
more writedowns to come.
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.
(Editing by Louise Heavens)
