* Stability of U.S. banks again called into question
* Asia shares fall 2 percent, bond yields sink as fear
rises
* Euro may see limited upside before next ECB meeting
* 20-year JGB auction is good enough for bond bulls
(Repeats to more subscribers)
By Kevin Plumberg
HONG KONG, April 21 (Reuters) - Asian stocks slid and
government bonds climbed on Tuesday after a steep rise in bad
debt at Bank of America renewed credit fears, sparking worries
a 25 percent month-long rally in global equities had peaked.
Major European stock futures were up 0.1 percent, pointing
to a slightly higher open, after better-than-expected results
from British retailer Tesco <TSCO.L> though the health of the
banking industry was a nagging concern. []
The financial sector was under fire after the largest U.S.
bank greatly increased its reserves for non-performing assets,
raising uncertainties about future writedowns at a time when
investors are already worried about the outcomes of stress
tests on the U.S. banking industry. []
Shares of global lender HSBC <0005.HK> tumbled 5.8 percent
while top Japanese bank Mitsubishi UFJ Financial Group fought
back some to end down 1 percent <8306.T>, after gains in
financials had led a steep rally in global equities since
March.
"One day of a major correction does not break a trend,
especially the ferocious rally of the past six weeks," Dariusz
Kowalczyk, chief investment strategist with SJS Markets in Hong
Kong, said in a note.
"But we do expect a more substantial return to the risk
aversion trade some time in the near term, most likely in
relation to the U.S. bank stress test results expected on May
4."
Japan's Nikkei share average <> fell 2.4 percent,
weighed down by a mix of exporters and industrials after U.S.
stock markets dropped between 3 and 4 percent on Monday.
Shares of Toyota Motor Co <7203.T> dropped 3.9 percent on a
report the automaker will likely produce 12 percent fewer
vehicles this financial year because of a sales slump.
[]
The MSCI index of Asia Pacific stocks outside Japan
<.MIAPJ0000PUS> fell 2 percent, after hitting a six-month high
last Thursday. The index is still up some 25 percent in the
last month, in what many strategists regard as a bear market
rally.
The financial sector led the region lower, and cyclical
stocks were also sold, though technology shares were generally
outperformers.
A 5.5 percent decline in shares of China Mobile <0941.HK>
was the second-biggest drag on Hong Kong's Hang Seng index
<>, which slid 3.7 percent. The world's largest wireless
provider said subscriber growth showed signs of slowing as the
broader economy slows in China. []
CURVES FLATTEN
Government bonds, which have been dogged by fears about
large upcoming supply to finance government stimulus spending,
got a lift as investors bailed out of equities.
Very steep yield curves generally flattened this week, with
investors finding greater value in late maturities. The
difference between 10-year and 2-year Australian bonds narrowed
15 basis points in the last week.
Reserve Bank of Australia Governor Glenn Stevens said for
the first time that Australia is in the midst of its first
recession since 1991, but added that the effects of monetary
and fiscal stimulus have yet to come fully through yet.
"I think the reasonable person, looking at all the
information available now, would come to the conclusion that
the Australian economy, too, is in recession," Stevens told a
gathering of company directors.
The swaps market continued to reflect a 75- to 80-percent
chance that the RBA will cut policy rates again in May by a
quarter point <RBAWATCH>.
The yield on the benchmark 10-year U.S. Treasury note
<US10YT=RR> slid to 2.83 percent from 2.85 percent late in New
York, with new supply light this week.
The June 10-year Japanese government bond future <2JGBv1>
extended gains after the results of an auction of 20-year bonds
to 0.5 point, still working its way back after hitting a
5-1/2-month low on April 9.
A 900 billion yen auction of 20-year bonds had the highest
coupon since a December 2008 issue, though demand measured by
bid-to-cover was the lowest since a September auction.
"The market is expected to refocus on supply when we have
increased issuance after a few months," said Tatsuo Ichikawa,
fixed-income strategist with RBS Securities in Tokyo.
The euro rebounded from one-month lows against the yen and
U.S. dollar, but support for the single currency was limited
ahead of the next European Central Bank meeting on May 7.
Currency investors were focused on what kind of
unconventional policy actions the central bank could take to
ease credit conditions and whether internal politics will
prevent an aggressive stance.
The euro was up slightly on the day at $1.2935, not far
from Monday's low of $1.2883 <EUR=>. Against the yen, the euro
was up 0.4 percent to 127.15 yen <EURJPY=> after earlier
touching a one-month low near 126 yen.
U.S. crude oil prices were just below $46 a barrel <CLc1>
after a near 9 percent drop on Monday sparked by the retreat in
global equity markets and worries about the pace of any
economic recovery and its impact on oil demand.
The spike in financial market volatility caused dealers to
question whether or not the global economy is nearing a bottom.
