(Adds European outlook, fresh quotes; updates prices)
By Tom Miles
HONG KONG, March 3 (Reuters) - Fears of a U.S. recession
sent the dollar to a 3-year low against the yen on Monday,
driving Japanese shares down more than 4 percent and fuelling a
rush for gold, silver and safe-haven government bonds.
European shares were set to follow Asian markets lower,
with financial bookmakers expecting losses of 1.2-1.9 percent
for major markets in London <>, Frankfurt <> and
Paris <> as the dollar's tumble unnerved investors.
The dollar fell as far as 73.531 <.DXY> against a basket of
six major currencies, the lowest since the index was started in
1973. It ploughed below 103 yen <JPY=> as Wall Street's
2-percent-plus 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.
"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."
The weak dollar, which has fallen five yen in the past five
sessions, hurts Asian exporters in particular.
Risk averse investors sought safety in government bonds and
gold, which hit its fourth straight record high at $983.90 an
ounce. Silver <XAG=>, in hot pursuit, breached $20 an ounce for
the first time since 1980.
"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.
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.
STOCKS HAMMERED
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 <> closed down 4.5 percent and Sydney's
S&P/ASX 200 index <> fell 3 percent, with a few gains
among miners drowned out by the selling of banks and retailers.
"Until we see the financial market normalise, it is hard to
see equities stage any significant recovery from here," said
Credit Suisse equities analyst Adnan Kucukalic in Australia.
Asian stocks outside Japan, gauged by MSCI's index
<.MIAPJ0000PUS>, were 3 percent lower by 0634 GMT, with Hong
Kong <> and Seoul <> stocks down more than 2 percent.
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.
BIG FED CUT EXPECTED
Many in the market now expect the U.S. Federal Reserve to
cut its benchmark federal funds rate by 75 basis points from
3.0 percent at its policy meeting later this month <FEDWATCH>.
The market had widely expected a 50-basis-point cut last week.
Fed Chairman Ben Bernanke last week reinforced expectations
of more rate cuts when 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 insurer American International Group
Inc's <AIG.N> record loss added to fears of more writedowns.
Recession-watchers will keep an eye on the Institute for
Supply Management's February reading on U.S. manufacturing
later on Monday, before turning their nervous attention back to
Bernanke, who is due to speak again on Tuesday.
Analysts assume he will reiterate his willingness to cut
rates even in the face of rising inflation.
(Editing by Lincoln Feast)
